## Decoding the Ten-Year Decline of the Yen: From 32-Year Lows to Investment Opportunities

The yen's performance over the past decade has been volatile, with the rapid depreciation in recent two years attracting global investor attention. In November 2023, the USD/JPY exchange rate hit a 32-year low of 151.94, reflecting deep-rooted structural issues in the Japanese economy and divergence in global central bank policies.

### A Brief History of the Decade of Yen Depreciation: From 80 to 150

To understand the yen's decade-long trend, we must trace back to a turning point at the end of 2012. At that time, the USD/JPY exchange rate was around 80 yen per dollar, beginning a prolonged depreciation cycle. Over ten years, this rate declined from 80 to around 150, with a total drop of over 45%.

This decline can be divided into three distinct phases. The first phase (2013-2015) saw an average annual depreciation of 15%-18%, with the USD/JPY rising from 76 to 126. The driving forces were the Abe government’s quantitative and qualitative easing (QQE) policies and the divergence from the Fed’s tightening stance. The second phase (2016-2019) involved the Fed’s aggressive rate hikes, causing the yen to weaken again to around 120. The third phase (2022-2023) was the most intense, with the US-Japan interest rate differential widening to extremes, leading to over 30% depreciation of the yen within two years.

### Three Major Roots of the Yen’s Continuous Depreciation

**Divergence in monetary policies is the decisive factor.** The Bank of Japan (BOJ) has maintained negative interest rates and an ultra-loose monetary stance to combat economic stagnation, even after the appointment of new Governor Ueda. Meanwhile, starting in 2022, the Fed embarked on a series of aggressive rate hikes, totaling over ten increases by 2023. The policy divergence has created a record US-Japan interest rate gap, continuously attracting capital flows into dollar assets.

**Structural economic challenges intensify pressure.** Japan faces dual challenges of population decline and aging, which suppress economic vitality. In Q3 2023, Japan’s GDP contracted by 2.1% quarter-on-quarter, a significant deviation from market expectations. Persistent weakness in private consumption and sluggish corporate investment further weaken the yen’s intrinsic support.

**Rising energy and commodity dependence enlarges trade deficits.** Japan’s energy dependence reaches 88%, and food reliance exceeds 60%. Amid high global energy and food prices, Japan’s trade deficit hit record highs. This trade deficit increases yen supply, exerting additional downward pressure on the exchange rate.

### Key Events in the Yen’s Decade of Movement

**The first major depreciation (2013-2015)** was driven by market expectations that yen depreciation would stimulate exports and improve the economy. In reality, exports and industrial output did improve after the yen weakened, and consumer spending also showed signs of recovery. During this period, yen depreciation was widely viewed as positive.

**The historic low in October 2022** marked a turning point. While the Fed continued large rate hikes and global inflation surged, the BOJ persisted with its easing policies. Capital outflows from Japan persisted, putting unprecedented pressure on the yen. On October 20, the yen hit a low of 151.942, the weakest level since 1990.

**Government intervention became a new phenomenon in 2023.** In September, Japan’s Ministry of Foreign Affairs warned against speculative activities in the forex market. For the first time since 1998, the Japanese government intervened. In November, after the yen again touched 151.94, the BOJ intervened once more, reflecting the seriousness of Japanese policymakers regarding excessive yen depreciation.

### 2023 Economic Performance and Policy Adjustments

Japan’s economy in 2023 showed volatility. Q1 GDP grew by 2.7%, and Q2 even expanded by 4.8%, leading markets to optimistic hopes that Japan might emerge from the “Lost 30 Years.” However, a -2.1% quarter-on-quarter decline in Q3 shattered this illusion, prompting the Cabinet Office to revise down the full-year forecast.

Meanwhile, Japan faces the dilemma of inflation and real wage stagnation. In November 2023, core CPI rose by 2.5% year-on-year, exceeding the Bank of Japan’s 2% target for several consecutive months. However, real wages have declined for 19 consecutive months, eroding residents’ purchasing power and weakening consumption.

To address these issues, the Japanese government launched its largest-ever economic stimulus package in November, totaling over 17 trillion yen. The plan includes income tax cuts, subsidies, and extended energy price support, gaining recognition from IMF, World Bank, and OECD.

### Outlook for the Yen’s Decade: Where Is the Reversal Opportunity?

Entering 2024, the future trend of the yen will be a market focus. The key depends on the evolution of monetary policies in both countries:

If the Fed begins rate cuts as market expectations suggest in 2024, and the BOJ gradually exits negative rates supported by economic data, the US-Japan interest rate gap will narrow significantly, possibly reversing. In this scenario, the yen could face a clear appreciation opportunity, with USD/JPY potentially falling below 130.

Conversely, if the Fed maintains high rates to combat inflation, and the BOJ remains accommodative due to economic weakness, the yen will continue to depreciate.

### Trading Opportunities from Historic Lows

The current 32-year low in the yen presents a unique opportunity window for forex traders. Investors can operate based on their judgment of exchange rate trends in highly liquid currency pairs.

The most promising yen-related currency pairs include:

**USD/JPY**: The most traded and liquid pair globally, suitable for investors of any scale.

**EUR/JPY**: Relatively more volatile, offering substantial profit potential.

**GBP/JPY**: Characterized by high volatility, ideal for swing trading.

**AUD/JPY** and **CAD/JPY**: Commodity currencies that tend to move inversely to the yen.

These pairs have high trading volume, relatively tight spreads, and efficient price execution. Short-term traders can make multiple entries and exits, while medium- and long-term investors can also lock in trend opportunities.

### Four Main Channels for Participating in Yen Trading

**Forex trading platforms** offer the most convenient operation methods, supporting leverage trading and 24-hour global market access.

**Bank trading or over-the-counter currency exchange** is suitable for large transactions and long-term holdings.

**Futures exchanges** provide yen futures contracts for institutional and professional investors to hedge risks.

**Forex margin trading** offers maximum leverage with lower capital requirements.

### Risk Tips and Conclusion

The ten-year volatility history of the yen indicates that forex markets contain both risks and opportunities. Although the yen is currently at a historic low, market uncertainties remain high. Sudden shifts in central bank policies, geopolitical events, or global economic shocks could alter the current landscape.

Therefore, investors participating in yen trading must develop clear trading plans and strict risk management strategies, including stop-loss settings, position control, and portfolio balancing. Only with thorough preparation can one seize opportunities in this long-term downward market of the yen.