The yen is expected to hit a low of 156, with policy divergence increasing depreciation pressure. Will the next threshold be 160?

What is the market betting on? The USD/JPY breaks through the 156 level, and investors are beginning to speculate whether 160 will become the next psychological barrier. Behind all this lies the tug-of-war between the Japanese government and the central bank’s policies.

Fiscal expansion clashes with hesitation to raise interest rates

Japan’s Prime Minister Fumio Kishida’s economic advisor Goushi Kataoka recently stated: fiscal spending is more important than raising interest rates, and the Bank of Japan is unlikely to raise rates before March next year. Once this signal was given, the yen was immediately sold off.

Data supports the market’s reaction—latest polls show only a 28% expectation of a rate hike by the Bank of Japan in December, with the probability of a rate hike in January rising to 42%. In other words, investors have already postponed their rate hike plans.

How strong is Fumio Kishida’s stimulus plan?

On November 21, Kishida’s economic stimulus plan is set to be unveiled, with a budget exceeding 17 trillion yen, a substantial amount. At the same time, Japan’s 20-year government bond auction results fell short of expectations, further reinforcing market expectations of large-scale fiscal spending.

Under this scenario, the Bank of Japan’s rate hike plans are being suppressed—Kishida’s government explicitly expressed dissatisfaction with the BOJ’s rapid rate increases, hoping the central bank will cooperate with government efforts to stimulate the economy. Ironically, Governor Ueda Haruhiko hinted that a rate hike could happen as early as December, but political pressure is weakening this rate hike momentum.

On November 19, the yield on Japan’s 10-year government bonds rose to 1.78%, a new high since 2008, reflecting deep concerns about Japan’s future inflation and policy direction.

Investors’ calculations

Nomura Securities FX strategist Yuji Goto directly stated: “Investors realize that the fiscal expansion may delay the BOJ’s rate hikes, so they are starting to sell the yen.” This completes the logical chain—fiscal stimulus → delayed rate hikes → yen depreciation.

Francesco Pesole, FX strategist at ING Group, believes that speculators are still actively buying USD/JPY to test the Japanese government’s tolerance. He said that the effectiveness of government verbal warnings is weakening, and further upward pressure could emerge in the coming days, with the 160 level becoming the new target.

Barclays’ trading advice

Barclays economists analyze that Kishida’s policy stance leans toward the “Abenomics” approach, combined with Japan’s high sensitivity to fiscal risks, which will keep USD/JPY elevated with further fiscal expansion. Their conclusion is: the logic of continuing to go long USD/JPY remains valid.

The yen has already fallen to a low of 156, but based on current market policy expectations and capital flows, 160 may not be the end.