The Bank of Japan began raising interest rates in August 2024, exiting its negative interest rate policy as Japanese bond yields rose. In the same month, the U.S. Federal Reserve signaled an easing of monetary policy.

The yen appreciated over the following weeks, with the USD/JPY exchange rate falling from around 160 to 140. The shift in policy direction at the two central banks coincided with the move in the exchange rate.

By early 2025, the USD/JPY exchange rate was drifting back toward 160. The interest rate differential between the U.S. and Japan was compressing rather than widening during that period.

The yen was also affected by a three-body currency problem involving the U.S. dollar, the Japanese yen, and the Chinese yuan. The Bank of Japan's exit from negative interest rates marked a significant shift in its monetary stance, occurring as Japanese bond yields rose alongside the policy change. The convergence of policy signals from Washington and Tokyo in August 2024 contributed to one of the sharpest moves in the USD/JPY exchange rate in recent years, with the pair dropping approximately 20 yen over several weeks.