Core Viewpoint - The article discusses the significant fluctuations in the exchange rate between the Japanese yen and the US dollar, driven by escalating trade tensions between the US and China, and the impact of inflation data on currency trading dynamics [1][2]. Group 1: Currency Exchange Rate Movements - On April 11, the exchange rate of the yen against the dollar rose to the range of 142 yen per dollar, surpassing the previous high of 143.99 yen on April 9, marking the largest appreciation of the yen and depreciation of the dollar since early September 2024 [1]. - The market has seen an increased tendency to sell the dollar compared to other major currencies due to heightened vigilance regarding US-China trade tensions [1]. Group 2: Trade Tariffs and Economic Indicators - The US announced an additional tariff rate of 145% on China, which is an increase from the previously stated 125% by President Trump, based on a 20% extra tariff that took effect in February and March [1]. - In retaliation, China implemented an 84% additional tariff on US goods, further escalating the trade conflict [2]. - The US Consumer Price Index (CPI) for March showed a year-on-year increase of 2.4%, which was below market expectations of 2.6%, alleviating some concerns regarding inflation in the US and contributing to the trend of selling the dollar [2].

Core Viewpoint - The appreciation of the Japanese yen since early 2025 is primarily driven by speculative trading from foreign investors based on the narrowing interest rate differential between the US and Japan, rather than reflecting genuine demand from Japan [2][11]. Group 1: Reasons Behind Yen Appreciation - The main factors for the yen's appreciation include rising inflation in Japan, expectations of further interest rate hikes by the Bank of Japan (BOJ), increasing Japanese bond yields, and a narrowing of the US-Japan interest rate differential [3][21]. - As of January 2025, Japan's CPI rose by 4.0% year-on-year, the highest among major developed economies, driven by both cost-push and demand-pull factors [17][21]. - The yen's appreciation has been largely influenced by trading activity during non-Japanese trading hours, indicating that foreign investors are the primary drivers of this trend [11][12]. Group 2: Real Demand vs. Speculative Flows - Despite the yen's appreciation, real demand indicators show a continuous net outflow of funds from Japan, suggesting that a strong yen may not be sustainable in the long term [4][34]. - Japan has been running a trade deficit, with January 2025's trade balance showing a deficit of approximately 2.7 trillion yen, influenced by high energy prices and structural shifts in Japanese companies moving operations overseas [25][26]. - The service trade balance has remained roughly neutral, with an increase in inbound tourism offsetting structural deficits in digital services [27]. Group 3: Future Yen Exchange Rate Outlook - In the short term, the yen may appreciate due to trading factors, but long-term significant appreciation is unlikely due to ongoing structural outflows of funds from Japan [5][34]. - Historical patterns indicate that substantial yen appreciation typically requires economic weakness in the US or global risks, which are not currently present [35]. - The BOJ's interest rate hikes are already priced in, and the potential for further significant increases is limited, which may hinder the yen's long-term strength [35][36]. Group 4: Impact of Carry Trade - As of February 2025, net short positions in the yen remain, but they are not at extreme levels, suggesting that a rapid reversal leading to significant yen appreciation is unlikely [6][39]. - The potential for large-scale reversals in carry trades that could disrupt global financial markets is also considered a low-probability event [39].

Core Viewpoint - The current trend of yen appreciation is considered temporary, with expectations of long-term depreciation towards 155-160 yen per dollar due to strong dollar demand and various economic factors [1][3][5]. Group 1: Yen Market Dynamics - Speculative buying of yen has reached historical levels, with net long positions nearly at their peak, indicating significant market interest [2]. - Despite the recent rise in yen value, the appreciation is slow and primarily a correction from previous depreciation levels, with strong non-speculative selling pressures counteracting the trend [3][4]. Group 2: Economic Factors Influencing Yen Value - Japan's digital trade deficit has expanded significantly, now exceeding 6 trillion yen annually, contributing to the demand for dollars and limiting yen appreciation [3]. - The interest rate differential between Japan and the U.S. remains close to 4%, creating a cost for holding long yen positions, which could lead to rapid liquidation if expectations for yen appreciation diminish [3][4]. Group 3: Purchasing Power Parity and Future Projections - The purchasing power parity suggests a theoretical exchange rate of around 100 yen per dollar, but actual market conditions reflect a more complex scenario with differing valuations for goods and services [4]. - Historical trends indicate that as Japan's production bases have moved overseas, the path for yen appreciation has become less clear, with current depreciation viewed as reasonable under purchasing power parity theories [4][5]. Group 4: Potential for Domestic Yen Demand - There is speculation that domestic demand for yen could increase as Japanese investors seek to hedge against overseas assets, potentially supporting yen appreciation [6]. - However, the current trend of hedging against currency fluctuations is not widespread, and the prevailing sentiment suggests that the phase of significant yen depreciation may continue [7].