Core Viewpoint - The main factors influencing the fluctuation of the Japanese yen exchange rate have changed over time, with current pressures stemming from the rising stock risk premium in the U.S. and the ongoing AI boom, which complicates the traditional relationship between U.S.-Japan interest rate differentials and yen valuation [2][6]. Group 1: Yen Exchange Rate Dynamics - The yen depreciated to the 157 yen per dollar range on February 5, marking the lowest point since the U.S. financial sector initiated "exchange rate checks" on January 23 [4]. - The U.S.-Japan two-year government bond yield spread has narrowed significantly from a year ago, currently ranging between 2.25% and 2.29%, down from 3.4% [4]. - The traditional logic that a narrowing U.S.-Japan interest rate differential would strengthen the yen has failed, as external factors, particularly the rise of AI stocks in the U.S., are driving the yen's depreciation [4][6]. Group 2: Components Influencing Yen Valuation - The factors affecting the yen's exchange rate can be broken down into five components: monetary supply in the financial system, the U.S.-Japan reserve differential, future monetary policy differences, capital flows, and the U.S. stock risk premium [4]. - The U.S. stock risk premium, which reflects the excess return investors require from stocks over safer assets like bonds, has been a significant driver of yen depreciation [6]. Group 3: Investor Behavior and Trends - Japanese investors are increasingly enthusiastic about overseas stock investment trusts, with net inflows exceeding 2 trillion yen in January, marking the highest record since the new NISA tax-exempt investment scheme began [7]. - The trend of "household selling yen" is expected to continue, with predictions indicating that the actual interest rates on yen will remain low, leading to potential losses for those holding yen [9]. Group 4: Future Projections - The digital trade deficit, particularly from payments for IT services to U.S. companies, is projected to expand significantly, with estimates suggesting it could exceed 6 trillion yen by late 2025 and reach 18 trillion yen by 2035 [9]. - Analysts predict that even if domestic factors contributing to yen depreciation are resolved, the path to yen appreciation remains long, with expectations that the yen will not strengthen to 150 yen per dollar by 2026 [9].