Hello, this is Andy.
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Everyone, what are your thoughts on the current exchange rate, specifically the USD/JPY rate?
On TV programs and other media, we often hear about the weakening yen, the surge in inbound tourism, and the decline in overseas travel by Japanese citizens.
There’s also a common belief that when a global crisis occurs, the yen appreciates.
But is the traditional idea of the yen being a "safe haven" still valid today?
I had my doubts about this and started looking into books on the subject.
Since the 2000s, with the rise of the internet, online trading of stocks and foreign exchange has become widespread.
I myself began trading forex through an FX company around 2005.
During the 2008 Lehman Shock
and the 2011 Great East Japan Earthquake,
the USD/JPY rate appreciated sharply (i.e., yen strengthened), which I vividly remember being shocked by.
Based on those past experiences, I took a short position on the USD/JPY during the 2020 COVID shock—in other words, I sold dollars and bought yen.
But I failed—miserably.
Why?
The rate dropped from around 110 yen to near 100 yen due to COVID. Based on past experience, I expected a fierce battle around the 100 yen level, followed by a dramatic breakout into further yen strength.
I imagined the rate would quickly drop into the low 90 yen range.
However, the result was completely the opposite...
From around 102 yen, the rate quickly bounced back to 110 yen, and then surged past 120 yen, eventually reaching the 140 yen range.
I had to cut my losses on my USD/JPY short position at just above 110 yen. 😅😅😅😅
Exchange rates are determined by supply and demand, as well as speculation.
This book provides an analysis focused on the supply and demand side.
It was a very interesting read.
Conclusion
I feel that the yen will continue to weaken.
Looking at the situation on a 10-year scale, with Japan's declining population, it is difficult to expect an increase in domestic production or exports.
Therefore, it is hard to imagine that Japan will return to a trade surplus, and I believe the yen will continue to depreciate.
Japan is in a long-term trend of population decline, and the problems stemming from this are not likely to change easily.
As a result, the trend of a weakening yen will likely continue as well.
① Trade Balance
Japan’s economic structure appears to have changed around 2014.
Due to the sharp yen appreciation following the Great East Japan Earthquake, companies accelerated their shift to local production overseas. At the same time, increased crude oil imports caused the trade balance to fall into a deficit.
② Services Balance
Inbound tourism contributes to yen appreciation, but labor shortages are limiting Japan's ability to accommodate tourists.
Meanwhile, services provided by GAFAM companies such as Amazon, Apple, and Netflix are billed in U.S. dollars. As usage of these services grows, the amount paid overseas is expected to surpass the inbound-related surpluses.
With the advancement of AI, spending on GAFAM services is likely to increase, and further widening of the services deficit is anticipated.
③ Primary Income Balance
Japanese companies earn enormous returns from overseas investments.
However, much of this profit is reinvested locally without being repatriated to Japan.
As a result, despite the large surplus, this income contributes little to yen appreciation due to the lack of capital inflow back to Japan.
④ Asset Management Nation / Household Sector Yen Selling
This is the effect of the new NISA (Nippon Individual Savings Account).
There is a boom in index investing in foreign stocks, and a significant portion of Japan’s ¥2,000 trillion household financial assets is gradually shifting toward foreign equities.
Since these are long-term investments, there is one-sided demand for dollars—leading to yen depreciation.
What I'm Doing Personally
I hold nearly all of my own and my family's assets in dollar-based investments.
More than 90% of our portfolio is linked to the U.S. dollar.
We invest mainly in U.S. and global stock index funds.
As a hedge, we also hold U.S. bonds and gold.
Japan’s population decline is a certainty.
Even when I talk to others in my age group, no one feels the population will start growing again.
If the yen continues to gradually weaken, I will continue managing my assets in dollars as a form of inflation hedge.
At Expo 2025 Osaka, I also felt it—overseas is expensive, Japan is cheap.
With the weakening yen, I believe Japan will continue to face inflation and rising prices.
It feels like we are at a major historical turning point.
