Yen Depreciation hit a fresh all-time low in April 2026. On a real effective exchange rate (REER) basis, it is the weakest since the float regime began in 1973, and analysts have even suggested the yen is now “weaker than the Turkish lira“. As of May 27, USD/JPY trades around 160, roughly +52% depreciation vs the 105 level in 2020.

This article synthesizes Daum (5/27), BIS, Itochu Research Institute, MOF Japan, BOJ, and BOK data to cover the 5 causes of Yen Depreciation (trade deficit, US-Japan rate gap, expansionary fiscal, energy imports, BOJ policy limits), REER currency comparison, trade balance trajectory, Takaichi-administration fiscal impact, 5 channels of Korean economy impact, outlook with 3 scenarios, and 5 investment strategies. BIS REER statistics at BIS EER; BOJ at BOJ.

USD/JPY moved from ~105 in 2020 to ~160 in May 2026 — a +52% long-term depreciation over 6 years. 138 in 2022, 145 in 2023, 152 in 2024, and 158~160 settled in 2025~2026. 150 was once a psychological resistance line, but that level has now become routine.

A rising USD/JPY means weaker yen, which triggers higher import prices + household burden + exporter profit boost simultaneously. Structurally, Japan’s trade balance hit a record deficit of -20T JPY in 2022 and has not turned to surplus, creating a vicious cycle where currency weakness becomes locked in as fundamental deterioration.

Yen weakness results from 5 compounding structural and policy factors, not a single driver. Persistent trade deficit, US-Japan rate gap, expansionary fiscal, energy import dependence, BOJ policy limits — these layer to cement the downtrend.

The US-Japan rate gap is the key short-term FX driver. With US policy rates around 5% vs Japan’s ~0.5%, carry trade flows (borrow low-yield yen to fund high-yield dollars) chronically pressure the yen lower. Since the Takaichi Sanae administration tilted toward expansionary fiscal, BOJ’s room to hike has further narrowed — a recently added factor.

Real Effective Exchange Rate (REER) adjusts nominal FX for inflation differentials weighted by trade. Per BIS data with 2020=100, Japan’s REER in 2026 is estimated at ~60 — lower than Turkish lira (65), Korean won (92), Chinese yuan (95), and US dollar (115).

This is the basis for the “weaker than the Turkish lira” framing. Despite Turkey’s double-digit inflation and fiscal instability, Japan’s REER falling below the lira’s signals structural yen undervaluation.

Japan’s trade balance went from +1T JPY surplus in 2018 to a record -20T JPY deficit in 2022. It narrowed to -9T in 2023 and -5T in 2024, but as 2026 unfolds, Middle East tensions + rising oil prices are reigniting concerns of a -5T JPY deficit recurrence.

The core issue is Japan’s heavy dependence on imported energy and raw materials. Higher oil, LNG, and food prices feed directly into trade deficits, and yen weakness amplifies the burden. Exporters (Toyota, Sony) gain from a weak yen, while households and SMEs suffer from rising import inflation — bipolar structure deepening.

Since the Takaichi Sanae administration took office, fiscal expansion has intensified. Short-term, this supports growth, but the chain more JGB issuance → wider fiscal deficit → loss of yen credibility → additional FX downside is widely flagged.

Takeda Atsushi, chief economist at Itochu Research Institute, warned that “active fiscal policy under accommodative monetary conditions can lead to a loss of yen credibility“. With BOJ maintaining easy money while the government adds fiscal stimulus, the US-Japan rate gap widens and yen selling pressure intensifies. Without success from AI, semiconductor, and energy growth strategies, this loop may persist for years.

Yen weakness has multi-layered effects on Korea. Export competitiveness erosion, tourism deficit, KRW/JPY drop, foreign flow volatility in equities, Japan ETF demand growth. Korean exporters directly competing with Japanese companies (autos, steel, semis) accumulate pricing disadvantage.

In tourism, Koreans surging to Japan + fewer Japanese visiting Korea simultaneously widens the deficit. KRW/JPY has slid from ~9.0 to ~8.5 KRW per JPY, favorable for travel·shopping·Japan stocks but a burden for Korean exporters and tourism-dependent businesses.

Yen recovery cannot come from FX intervention alone. Experts emphasize effective AI·semiconductor·energy growth strategies + wage rises → service inflation → real-rate improvement virtuous cycle. Structural change requires years, and near-term rebound is unlikely — BIS and Itochu shared view.

12-month scenarios split 3 ways. Bull (20%): 145 — BOJ hikes + trade surplus. Base (50%): 158 — current trajectory continues. Bear (30%): 175 — oil spike + fiscal deficit + BOJ limits. With 30% bear probability significant, FX hedging tools are recommended.

Five usable strategies in the yen weakness era: phased Japan ETF buying + Japan exporter stocks + reduce Korean autos + phased yen conversion + oil·LNG hedge. All require phased entry and pre-set stop-losses.

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