Yen Rebound Hinges on Rate Hikes and Fiscal Discipline
The yen's long decline may be coming to an end, according to economists. After a four-year downturn, signs of a weakening in the yen's value emerged in autumn 2026. A coordinated effort by Japan and the United States to push up the yen's value seems to be paying off, with intervention in currency markets and statements from US officials contributing to its rise.
A key factor behind the yen's depreciation since March 2022 has been the widening gap between Japanese and US interest rates. As economies recovered from the COVID-19 pandemic, demand outpaced supply, driving up global resource and energy prices. The US Federal Reserve responded by raising interest rates, while Japan maintained its negative interest rate policy and yield curve control.
The yen's value continued to decline as US economic data remained strong in 2023, prompting the Fed to raise rates four more times. Japan finally lifted its negative rate policy in March 2024, but its slow shift towards monetary normalization prolonged the yen's weakening.