The Japanese yen experienced significant growth at the end of 2023, appearing to mark a long-awaited turning point as it broke away from the previous year's trend. The USD’s drop was easy to explain. However, following the New Year, the situation took a sudden turn. Let’s delve into why the US dollar reclaimed its position and what happened with the yen.

In December, the yen was the preferred choice for bulls, which is pretty understandable. In 2022 and 2023, the Japanese currency stood out among major currencies because of its adherence to a negative interest rate policy. It’s an exception to the rule, as you realize.

At the end of 2023, it seemed like the turning point had been reached. The USD to JPY rate saw a nearly 6% decrease in November and December.


The chart above represents two key moments. The first one is linked to the expectations that the Federal Reserve will initiate a rate-cutting cycle in 2024, potentially reducing interest rates at least three times. The second reflects the expectations surrounding the Bank of Japan’s policy. Many experts forecasted that the BoJ would abandon its negative rate approach. This contrast allowed the yen to make an encouraging leap.

In 2024, this movement should have been continued. But one month was enough for the US dollar to recover the most losses.


To understand the scale of the problem, take a look at the chart below, which illustrates the USDJPY movements since the start of 2022. That’s what happened to the currency, traditionally considered a safe haven alongside, for instance, the Swiss franc.


The chart above provides insight into why market participants anticipated changes from the BoJ. However, it didn’t happen at the central bank’s January meeting. The regulator also continued its yield curve control policy, maintaining a 1%-as-a-reference yield cap on 10-year government bonds. Plus, there was a slight decrease in the inflation rate, diverting attention from the potential rise in interest rates.

Another factor affecting USD/JPY was the increase in retail sales data in the US. Higher consumer spending allows the Fed to maintain higher interest rates.

After all these developments, USD/JPY returned to roughly the same level as a few months prior. In other words, investors still expect a potential interest rate decrease by the Fed and a contrasting move by the BoJ. If so, perhaps it's an opportune moment to have faith in the yen.

As you're aware, the forex market situation can change rapidly, even within this text. Hence, any decision should be based on your own analysis and opinion.