The decline of the Japanese yen has become more and more apparent since the beginning of 2024. After three months of living in the United Kingdom (UK), the exchange rate has become impossible to ignore. Every purchase and every conversion is a reminder of the yen’s growing weakness against the pound. Local coffee places in Tokyo, Japan, would be 350 yen; here in London, UK, the campus coffee is around 500-600 yen. For meal preparations, what cost me 2000 yen in Tokyo is around 20 pounds in London, which is around twice the amount. This currency depreciation is not just an economic abstraction; it’s a reality affecting Japanese students studying abroad, reshaping our daily lives and financial decisions. (Putting aside the rent and the significant tuition that international students have to pay).
Questions that I want to say aloud: Why is the yen becoming so apparently weak, and as the new year has approached, what does its future hold? As a university, what role can we play in addressing these issues? What we are dealing with seems dauntingly big, so could our actions, however small, contribute to a stronger future for Japan’s economy?
So, Why is the Yen Declining?
One explanation for the yen’s decline is the big interest rate gap between Japan and other countries. For example, the U.S. Federal Reserve has kept interest rates high, presenting the dollar as a more ‘valued and reliable’ investment. On the other hand, Japan’s Finance Minister Katsunobu Kato commented in December 2024 on the “one-sided and sharp foreign exchange (FX) moves” negatively impacting the yen, and the Bank of Japan (BoJ) has taken a cautious approach. Although the BoJ recently raised interest rates, the increase was minimal, “only 10 basis points”, and they continue to buy Japanese government bonds every month to prevent quantitative tightening. While these policies have been aimed at developing domestic growth, they have unfortunately weakened the yen further.
The BoJ is also focused on achieving sustainable inflation. Governor Kazuo Ueda has “signaled a slowdown in the pace of monetary easing next year,” where he stresses that any major policy changes will depend on the Japanese wage trends and overall economic activity. However, this may not be entirely practical as the Japanese wage trends have been stagnant for years. Also, the “economic activity” will potentially limit Boj’s ability to act decisively because it is susceptible to external shocks like global recessions. Especially as JP Morgan presented the data, there is now a “35% chance that the global economy will enter a recession by the end of 2024 and a 45% chance that it will do so by the end of 2025”.
Another factor is Japan’s export-driven economy. Major exporters (listed mostly on the Nikkei 225) like Toyota, Honda, and Sony benefit from a weaker yen by making their products cheaper and more competitive overseas. While this seems like an advantage, it is only short-term and will result in higher import prices. As Japanese households are already grappling with “years of wage stagnation,” they are also struggling with rising costs for essential goods. So, while the government has stepped in through temporary interventions in currency markets, these measures are not sustainable in the long run.
And What Does the Future Hold for the Yen in 2025?
My intention in writing this article was to find any hints of potential improvement in the yen. Especially since it is a new year, like everyone else, I was hoping for a rise in value, but I fear that it will cautiously still be pessimistic and uncertain (unstable). Goldman Sachs writes that the yen will stay at or above ¥150 to the dollar over the next year, with minimal recovery expected even with potential BoJ interest rate hikes. So economists predict that the yen will continue to hover around its current weak levels unless significant policy changes are implemented.
The yen has also already weakened since the election of Donald Trump as the 47th president of the United States in November 2024. The currency had already gone “from near ¥150 to the dollar to above ¥156 briefly as U.S. rate cuts are expected to slow under a Trump administration and a stronger dollar is viewed as likely.”
A delayed response from the BoJ could push the yen even lower, possibly reaching ¥160 against the dollar. This can possibly trigger market interventions or earlier than expected rate hikes. However, considering the dependence on exports and also the aging Japanese population, it still feels difficult to come up with a long-term solution.
To try to be hopeful, though, there is a chance that 2025 could mark a turning point for Japan’s economy. If inflation begins to stabilize and wage growth accelerates, monetary tightening could be implemented by the BoJ to increase interest rates. Another perspective is that Japan’s focus on innovation and sustainability in industries like “technology, robotics, and green energy offers long-term growth potential.”
How Can University Students Make a Difference?
These kinds of issues in money currency can feel overwhelming, but I believe history shows that any small actions can make a big difference. After World War II, Japan was in ruins. Hence, the people began to focus on rebuilding the country by empowering the local community, government, businesses, and food. So it makes me think: what can students like us do to help Japan’s economy now?
One thing we can do is support local businesses. I feel that choosing Japanese-made products over imports is a simple way to help. It reduces the trade deficit and supports growth within the country. Back in the 1970s, when Japan faced an oil crisis, everyone came together to focus on local industries. The “operation scale-down” (while not so successful at first) was implemented, and “private consumption began to rebound because consumers were gradually becoming more confident that rapid inflation was unlikely to recur and employment conditions were likely to improve.”
I also think learning about money and how the economy works is important. During Japan’s “Lost Decade” in the 1990s, internet access for educational purposes and the use of electronic commerce remained low for many people, possibly one of the factors that led to a slowed recovery. Platforms like NISA (Nippon Individual Savings Account) make investing in Japanese companies easier for young people. It’s a small step, but it gives these companies the funding they need.
Talking about these issues matters, too. So we can join university discussions or local events about the economy and inspire ideas for change. I strongly believe that students in Japan have a potential to make a difference.
Another thing is how societal habits tie into economic systems. For instance, Japan’s extravagant Christmas celebrations drive short-term spending but promotes unsustainable consumerism. While it’s beautiful and so much fun, I think it’s worth asking: Do we need these many items? I feel that, as students, we can shift towards more mindful consumption. Recycling decorations, reusing items, or encouraging sustainable gift-giving traditions can help reduce waste while still enjoying the holiday spirit.
NOTE FROM THE AUTHOR
The weak yen is a challenge, but it also feels like an opportunity to rethink how we interact with the economy. Supporting local businesses, learning about financial systems, and making more sustainable choices may seem like small steps, but they all add up. If we’re more mindful of our spending and make changes, I believe we can contribute to the Japanese yen’s recovery.