We look back at the history of long-term trend shifts in USD/JPY and examine whether statements from Japan and the US on moving away from reflationary policies will bring an end to the yen’s depreciation trend, taking into account the impact of past events and Japan-specific factors.
Under the international monetary system in place after World War II, the dollar remained at a fixed exchange rate of ¥360 from 1949. However, following the 1971 Nixon shock, the system moved to floating exchange rates, returned to a fixed exchange rate of ¥308 by the end of that year, and then shifted to a fully floating exchange rate in 1973.
From the 1970s through the late 1990s, the oil crises, Japan’s current account and trade surpluses, US economic and monetary policy, and international monetary cooperation were among the main catalysts for trend shifts. When global capital flows were limited, US-led agreements determined the direction of USD/JPY.
From the late 1990s through the early 2010s, financial crises and US monetary policy had a significant impact. While crises became more likely to spread as regional risks, the expansion of capital flows made movements in USD/JPY increasingly complex. Japan’s monetary and fiscal policy factors also increasingly influenced the exchange rate.
Since the 2010s, the influence of Japan-specific factors has strengthened, while the possibility that statements from Japan and the US on moving away from reflationary policies could reverse the yen’s depreciation trend has been debated. It has been suggested that factors beyond such statements could prove decisive in triggering a shift.