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For many years, the Japanese yen was regarded as one of the dullest and most stable currencies in the world. Anyone investing in yen generally knew in advance what to expect. Over the past few months, however, that has changed noticeably. “The yen has woken up and is now fluctuating significantly,” says Thorsten Fischer, Managing Director and Head of Portfolio Management at Moventum AM. “These movements could become even more pronounced.”

Since the beginning of September 2026, the yen has strengthened considerably against both the euro and the US dollar. Within just a few days, exchange rates moved by more than four per cent. Such swings were long the exception rather than the rule for the yen. “The Bank of Japan’s next meeting, beginning on 17 September 2026, could provide an indication of the direction from here,” says Fischer.

Historically, the yen was long considered a relatively low-volatility currency. Following the end of fixed exchange rates in the 1970s, the yen began to fluctuate more freely, but remained remarkably stable for extended periods. “During periods of crisis, such as in 2008 or following the 2011 earthquake, investors often regarded it as a safe haven,” says Fischer. “From the 2010s onwards, however, this pattern began to reverse.” While other central banks raised interest rates, the Bank of Japan maintained rates close to zero. The currency that had once served as a haven increasingly became a funding currency.

This is where so-called carry trades come into play. Investors borrow in yen at very low cost and invest the proceeds in currencies offering higher interest rates. For years, this strategy worked reliably and helped keep the yen persistently weak. “August 2024 demonstrated, however, just how quickly such a trade can unravel,” says Fischer. “An interest-rate increase by the Bank of Japan, combined with weak US economic data, triggered a sudden unwinding of many positions.” The result was sharp market movements in both Japanese and US equities. Since then, the number of speculative bets against the yen has fallen considerably. “Nevertheless, some of the structural demand for cheap yen funding remains,” says Fischer. The risk of another unwinding of these positions, albeit on a smaller scale, has therefore not disappeared.

The political backdrop has also changed. In recent years, the Japanese government has repeatedly intervened in the foreign exchange market in an effort to halt the yen’s decline. In spring 2026, such intervention reached a new record level. Another noteworthy development came in August this year. “For the first time since the coordinated action by major industrialised nations in 2011, the US side appears to have participated directly in yen purchases,” says Fischer. “This puts genuine coordination between Japan and the United States back in the spotlight, rather than merely supportive words from Washington.”

Attention is now focused primarily on the Bank of Japan’s meeting on 17 and 18 September 2026. Many observers consider a further interest-rate increase likely. This expectation is supported by wage growth in Japan, which is running at its strongest pace in almost 30 years. The US Federal Reserve, on the other hand, remains cautious and is waiting for further economic data. Any shift in interest-rate expectations between the two countries has an immediate impact on the exchange rate.

“But there are other factors that could create additional volatility,” says Fischer. “In the options market, a large volume of contracts around certain exchange-rate levels has recently expired, which can amplify market swings.” Geopolitical tensions in the Middle East are also increasing demand for safe-haven assets such as the yen, as higher oil prices add to uncertainty. In addition, a growing number of investors are positioning for further yen appreciation by the end of the year.

A possible shift towards higher interest rates in Japan is coinciding with a US Federal Reserve that remains in wait-and-see mode. Political support from Washington is another factor. Meanwhile, some of the old carry-trade positioning remains in the background. “This combination makes further significant movements in the yen likely over the coming months,” says Fischer. “Whether this develops into a disruption similar to that seen in August 2024 remains to be seen.” The starting point is different today, as positioning is smaller and the interest-rate differential between Japan and the United States has already narrowed. The yen’s long-standing reputation as a dull currency, however, is likely to be a thing of the past.