The Japanese yen (JPY) finds itself under pressure following recent geopolitical developments and trade tensions, particularly with the U.S. implementing a 24% reciprocal tariff rate on Japanese goods as part of broader trade disputes initiated during the Trump administration. As a result, the yen has exhibited a tendency to strengthen against other currencies, particularly the Swiss franc, as traders gravitate towards safe-haven assets amid heightened uncertainty.
Recent forecasts by MUFG Research predicted a USD/JPY exchange rate of 154.00 for Q1 2025, gradually decreasing to 148.00 by Q4 2025. However, the yen has recently depreciated against the dollar, prompting a potential reassessment of these projections. As of now, the JPY/USD pair trades at 60-day lows, approximately 0.006767, which is 2.2% below its three-month average. The exchange has fluctuated within a stable range of 5.4%, between 0.006735 and 0.007099, indicating limited volatility in recent trading.
The yen’s performance is significantly influenced by Japan's monetary policy, which remains characterized by ultra-low interest rates designed to stimulate economic growth and prevent deflation. This environment increases the yen's appeal as a funding currency for carry trades. However, when global economic conditions stabilize, demand for the yen typically weakens as investors seek higher-yielding assets. Conversely, during times of economic stress, the yen often strengthens as traders unwind carry trades.
The yen's safe-haven appeal is further bolstered by geopolitical tensions, such as those observed during the ongoing Ukraine conflict. Nevertheless, Japan's heavy reliance on imported energy resources renders the yen vulnerable to fluctuations in commodity prices and supply chain disruptions. Trade relations, particularly exports—which benefit from a weaker yen—also play a crucial role in shaping the currency's value. Notably, the JPY/EUR pair is experiencing 90-day lows at approximately 0.005801, which is 4.0% below its three-month average, whereas the JPY/GBP pair has reached 7-day highs of around 0.005042, albeit 2.0% below its three-month average.
In summary, the yen's future trajectory will hinge on the Bank of Japan's policies, global market sentiments, trade dynamics, and ongoing geopolitical developments. Analysts suggest that a shift in interest rate policy from the BoJ could lead to a stronger yen, while continued loose monetary policy may persist in keeping it weak against higher-yielding currencies.
