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Japanese Yen: What Drives It Up and Down

The Japanese yen is the world's third most-traded currency. Between 2023 and 2026, it swung from weaker than 157 per dollar to stronger than 144 per dollar and back again. Understanding what moves the yen means understanding the gap between US and Japanese interest rates, the decisions of Japan's central bank, and the health of both economies.

Main drivers

What pushes the yen up (strengthens it)

• Bank of Japan raising rates — Higher Japanese rates narrow the gap with US rates, making it less attractive to borrow cheap yen and invest elsewhere.
• US labor market weakening — Signs of a cooling US job market raise expectations for US rate cuts, shrinking the rate gap.
• US inflation slowing — Falling US inflation opens the door for the Federal Reserve to cut rates, which weakens the dollar and strengthens the yen.
• Rising Japanese inflation data — Hotter inflation in Japan increases the odds the Bank of Japan will raise rates soon.
• Government currency intervention — When the yen falls too fast, Japanese authorities buy yen directly in currency markets to stop the slide.

What pushes the yen down (weakens it)

• Wide US-Japan rate gap — When US rates sit far above Japanese rates, investors borrow yen cheaply and park money in higher-paying dollar assets, selling yen in the process.
• Sticky US inflation — Persistent US inflation delays Federal Reserve rate cuts, keeping the rate gap wide.
• Japanese economic weakness — A shrinking Japanese economy undermines the case for rate increases by the Bank of Japan.
• Japanese political uncertainty — Political disruptions cloud the outlook for Bank of Japan policy, making investors nervous about the yen.
• US tariffs on Japanese goods — Tariffs hurt Japan's export-dependent economy, dimming growth prospects and weighing on the currency.
• Large Japanese government spending — Big fiscal packages raise concerns about government debt and bond supply, pressuring the yen lower.

Historical examples

When the yen strengthened

• Bank of Japan raising rates or signaling future increases

  • September 2023 — The yen rose toward 146 per dollar after Bank of Japan Governor Ueda said the central bank could end its negative rate policy once the 2% inflation target was sustainably achieved.
  • August 2024 — The yen surged past 144 per dollar after Governor Ueda made comments leaning toward raising rates, while Federal Reserve Chair Powell said "the time has come to adjust policy." The contrast between the two central banks powered the yen higher.
  • November 2024 — The yen jumped 1% to around 150 per dollar after Tokyo inflation rose above 2%. Markets priced in a roughly 60% chance of a rate increase the following month, up from about 50% a week earlier.

• US labor market softening

  • May 2024 — The yen strengthened to around 154 per dollar as both initial and continuing unemployment claims came in well above recent averages, pointing to a softening US job market.
  • August 2024 — A poor US jobs report drove markets to expect larger rate cuts by the Federal Reserve, helping push the yen past 148 per dollar to its strongest level since March.

• US inflation slowing

  • July 2023 — The yen steadied near 140 per dollar as US inflation was expected to fall to 3.1%, fueling speculation that the Federal Reserve's July rate increase could be its last.

• Government currency intervention

  • July–August 2024 — Japanese authorities spent 5.53 trillion yen buying the currency directly in markets, contributing to the yen's sharp rally from above 157 to below 144 per dollar.

When the yen weakened

• Wide US-Japan rate gap

  • February 2024 — The yen fell past 150 per dollar as investors continued borrowing yen at near-zero rates to invest in higher-paying assets elsewhere. The yen became the worst-performing major currency that year, sliding 6.3% against the dollar.
  • May 2024 — The yen dropped past 157 per dollar, hitting a four-week low. Strong US Treasury bond interest payments kept the rate gap wide, encouraging more borrowing in yen.

• Sticky US inflation

  • May 2024 — The Federal Reserve held rates at 5.25%–5.50% as ongoing inflation pressures showed "a stall in progress" toward the 2% target, keeping the dollar strong against the yen.
  • February 2025 — The yen weakened past 154 per dollar after hotter-than-expected US consumer inflation data led traders to expect only one small rate cut for the entire year.

• Japanese economic weakness

  • February 2024 — Japan's economy shrank 0.4% on an annual basis in late 2023, falling into recession for the first time in five years. Private spending declined for three straight quarters amid high costs. This undercut the case for Bank of Japan rate increases and added to yen selling pressure.

• Japanese political uncertainty

  • October 2024 — The yen fell past 153.5 per dollar after Japan's ruling coalition lost its parliamentary majority in weekend elections. The loss was the largest since 2009 and raised doubts about the Bank of Japan's ability to continue raising rates.

• Bank of Japan rate hike already expected

  • March 2024 — In a paradox, the yen fell past 150 per dollar on the same day the Bank of Japan raised rates for the first time since 2007. Analysts noted the move had already been priced in by markets and was seen as "long overdue," so the announcement triggered selling rather than buying.

• US tariffs on Japanese goods

  • Late 2025 — Japanese automakers faced a 15% tariff on US-bound shipments. Exports to the US plunged 11.1% from a year earlier in December 2025, dragging on growth and weighing on the yen.

Who benefits

When the yen rises (strengthens)

• Japanese consumers — A stronger yen lowers the cost of imported food, energy, and goods, easing household budgets.
• Import-dependent Japanese businesses — Companies that rely on raw materials from abroad see their input costs fall.
• Japan's trade balance — Cheaper imports helped Japan post its first trade surplus in 23 months when the yen strengthened in mid-2023, as import costs dropped 12.9%.
• Holders of yen-denominated savings — Their purchasing power increases in global terms.

When the yen falls (weakens)

• Japanese exporters — A weaker yen makes Japanese goods cheaper overseas. In December 2025, exports climbed 5.1% year-on-year to a record high, driven partly by the weaker yen.
• Export-heavy Japanese stocks — Companies in autos, heavy industry, and manufacturing see overseas earnings worth more when converted back to yen. Shares in these sectors rose on days the yen weakened.
• Foreign tourists visiting Japan — Their home currencies buy more yen, making travel cheaper.
• Competitors of Japanese exporters (losers) — Foreign manufacturers in the same industries face tougher price competition when the yen is cheap.
• Japanese households and small businesses (losers) — They absorb higher costs for imported energy, food, and materials. In mid-2024, manufacturers reported that input prices hit multi-month highs due to yen weakness, and business confidence fell to its lowest reading in four months.

One important structural pattern: the yen contains a built-in self-correcting loop. When the yen weakens, import costs rise, inflation climbs, and the Bank of Japan faces pressure to raise rates. Higher rates then attract capital back into yen, strengthening it. Governor Ueda acknowledged this directly, noting that "a weak yen could lift inflation through higher import costs." But this loop works slowly, typically taking three to six months from depreciation to a policy response. During that lag, real damage to household budgets and business margins piles up.