TradingKey - Since mid-May, the USD/JPY exchange rate has hovered around 145 , with the yen’s earlier strengthening trend stalling in early 2025. However, as the U.S. dollar weakens at its fastest pace in over half a century and Japanese economic activity picks up, investors are increasingly betting that the seasonal strength of the yen in July could return.

At the time of writing, USD/JPY stood at 142.85, down about 0.80% on the day and 1.25% lower week-to-date.

USD/JPY Exchange Rate, Source: Investing.com

Historical Pattern: Yen Tends to Strengthen in July

Data shows that from 2020 to 2024, the Japanese yen appreciated against the U.S. dollar every July, with an average gain of 2.8% — making it the strongest month for the yen in any given year. In 2024, the yen gained as much as 7.3% in July alone.

Analysts attribute this recurring “golden July ” effect to several factors: anticipated shifts in Bank of Japan (BoJ) monetary policy, positioning adjustments ahead of the summer holiday season and Japanese exporters repatriating funds before dividend payments.

U.S. tatiff tensions have introduced uncertainty into global markets, with Trump reportedly restoring the tariff escalations in early July. These developments could further pressure the greenback — potentially boosting the yen.

T&D Asset Management noted that progress in U.S.-Japan trade talks and a more hawkish stance from the BoJ may both contribute to yen appreciation in July.

Fund managers added that institutional investors may begin increasing their yen exposure ahead of the summer break in August, while companies convert dollars back into yen to fund seasonal dividends and operational needs.

Economic Outlook Supports Yen Strength

Recent economic data has strengthened expectations that the Bank of Japan will raise interest rates by the end of 2025 .

On Tuesday, July 1, Japan released its au Jibun Bank Manufacturing PMI, which rose from 49.4 in May to 50.1 in June — marking the first time since May 2024 that the index crossed above the expansionary threshold of 50.

Meanwhile, a survey by Japan’s private think tank Teikoku Databank of 195 major food producers found that they plan to raise prices on 2,105 products in July — with some increases reaching up to fivefold, and an average hike of 15%.

In a separate government survey, 93.6% of Japanese consumers expected price increases over the next 12 months, slightly higher than the previous month's 93.2%.

According to overnight index swap (OIS) market pricing, traders are currently assigning a 40% probability of a BoJ rate hike before October , and over 50% chance of a move by year-end.

Leveraged funds also increased net long yen positions by 7,301 contracts in the week ended June 24, bringing total speculative net longs to 15,935 contracts — signaling growing investor confidence in the yen.

Weak Dollar Fuels Yen Gains

The broader weakness in the U.S. dollar is also supporting yen strength — possibly the most important factor.

The Bloomberg Dollar Index fell 10.8% in the first half of 2025, marking the worst January–June performance since President Nixon took the U.S. off the gold standard in 1973.

Some analysts argue that the current trend in foreign exchange markets is clearly one of dollar weakness, largely driven by ongoing trade wars and fiscal instability in the U.S.

With Trump set to escalate trade tensions again in early July, the dollar may face even greater downward pressure.

Can the Yen Appreciate Sustainably?

Despite rising expectations for yen strength, Nikkei cautioned that the yen’s rally so far this year has been driven more by dollar weakness than intrinsic yen strength.

To ensure sustainable appreciation, Japan must attract capital flows back into domestic assets — rather than just benefiting from temporary dollar declines.

As of the end of 2024, direct investment inflows into Japan totaled only ¥53 trillion , far below the government’s target of ¥150 trillion.

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