Japanese Yen depreciation hard to stop! Level 160 in sight, fiscal expansion becomes a new variable

The yen exchange rate hits a new low again, driven by a tug-of-war between policy and market forces. USD/JPY continues to climb, approaching 156, with the market widely betting that the next key resistance level will be 160.

Confusing policy signals, rate hike expectations significantly revised downward

Bank of Japan Governor Ueda Kazuo previously hinted that a rate hike could occur as early as December, but this expectation is rapidly unraveling. According to the latest market surveys, investors now estimate the probability of the BOJ raising interest rates in December has fallen to 28%, with a 42% chance in January next year—signaling a clear delay in the rate hike plan.

The critical turning point came after the appointment of new Prime Minister Sanae Takaichi. Economic advisor Goushi Kataoka openly stated, “Fiscal spending is preferable to normalizing monetary policy,” which is equivalent to announcing to the market that—before the government’s large-scale economic stimulus—rate hikes by the central bank will be postponed. Takaichi is dissatisfied with the BOJ’s rate hike plans and has even publicly urged the BOJ to cooperate with the government’s economic expansion policies.

Fiscal stimulus sparks market panic selling

On November 19, Japan’s 10-year government bond yield rose to 1.78%, hitting a new high since 2008. During the same period, the auction results for Japan’s 20-year government bonds were weak, indicating rising concerns about Japan’s fiscal outlook.

Takaichi Sanae is expected to launch a massive economic stimulus package on November 21, with a budget exceeding 17 trillion yen. Such expansionary fiscal policies often weaken the yen—because they reduce the necessity for the BOJ to hike rates and may also lead to rising long-term inflation expectations.

Investors sell off the yen, betting on continued dollar appreciation

Nomura Securities FX strategist Yujiro Goto pointed out that investors have clearly recognized this trend: “Fiscal expansion may lead the BOJ to delay rate hikes, so they are starting to sell the yen.”

This judgment resonates with institutional investors. According to trading data, speculators are still actively buying USD/JPY, effectively testing Japan’s tolerance for intervention. Francesco Pesole, FX strategist at ING Group, said, “The Japanese government’s verbal warnings are having less and less impact on the market. In the coming days, we may see further upward pressure, and the 160 level is not far away.”

Multiple institutions bullish on USD/JPY, 160 becomes a consensus target

Barclays economists believe that Takaichi Sanae’s policy stance leans toward “Abenomics,” which will continue to exert pressure on the yen. Considering the yen’s high sensitivity to fiscal risks, further fiscal expansion is expected to keep USD/JPY at high levels. The bank recommends investors continue to go long on USD/JPY.

The market consensus is becoming clearer: under the dual effects of the Bank of Japan’s distant rate hikes and ongoing government fiscal spending, the yen’s depreciation trend is hard to reverse. 156 is just a process, and 160 is the next target that more analysts are locking in.