The Japanese Yen is depreciating rapidly! USD/JPY approaches 160. Will Japan's 21 trillion yen stimulus package become the trigger?

The Japanese yen continues to weaken, with USD/JPY breaking through 157.89 this month and getting closer to the market-recognized “psychological barrier” of 160. Investors are asking the same question: when will this wave of depreciation stop?

Economic Stimulus Plan Sparks Downward Risk for the Yen

In early November, the Japanese government announced its largest fiscal stimulus since the pandemic, totaling 21.3 trillion yen. Of this, 11.7 trillion yen is allocated for relief measures to combat rising prices, marking a rare “big move” in recent years.

This massive expenditure is funded through two channels: first, expected increased tax revenue; second, newly issued government bonds. The cabinet is expected to approve the supplementary budget by the end of November at the earliest, and by the end of the year at the latest, it must pass through the parliament.

The market’s reaction was immediate—on November 20, the yield on Japan’s 10-year government bonds surged to 1.842%, hitting a high not seen since the 2008 financial crisis. This figure reflects growing investor concern about Japan’s debt outlook.

Central Bank Attitude Is Key: Rate Hike or Letting the Yen Depreciate?

Bank of Japan Governor Ueda Kazuo’s recent remarks are worth noting. He pointed out that the continued weakness of the yen would further push up prices because import costs are rising, and companies will respond by raising wages and product prices.

More importantly, he emphasized that exchange rate fluctuations have become more sensitive to price levels than ever before, and the central bank must remain vigilant at all times. This statement hints that a rate hike in December is quite likely.

The “Curse” of 160: What Is the Market Waiting For?

Market participants are now closely watching the number 160. Japanese authorities have intervened in the forex market multiple times around this level last year to curb excessive yen depreciation.

However, ANZ Bank’s forex strategist Rodrigo Catril poured cold water on the idea: “Interventions alone, without fiscal or monetary policy coordination, will only provide a good opportunity to short the yen.” He believes that only a genuine rate hike by the central bank could bring USD/JPY back below 150. Otherwise, breaking through 160 is not a risk but a certainty.

In other words, the outcome of this yen exchange rate saga is in the hands of the central bank—if they raise rates in December, it will be a turning point; if they hold steady, investors can expect to see 160 or even higher.