Yen appreciation undercurrent: Fiscal stimulus pushes down to 155, but divergence in central bank policies hints at a turning point

Policy Expectations Triggering a Depreciation Wave

Since the new Japanese Prime Minister, Sanae Takaichi, took office, market expectations for fiscal stimulus have intensified. The newly appointed Finance Minister, Shigeyuki Katayama, recently revealed that he is considering lowering the consumption tax on food to 0%, and this policy signal immediately triggered pressure for yen depreciation. On October 24, USD/JPY( continued to weaken, and market sentiment was strongly bearish on the yen.

Sumitomo Mitsui Banking Corporation’s Chief Forex Strategist, Hirofumi Suzuki, believes that if the food consumption tax reform is fully implemented, the yen’s depreciation trend will accelerate. He predicts that USD/JPY may break through the 155 level. Furthermore, Fukuoka Financial Group strategist, Jun Sasaki, pointed out that under the established path of fiscal expansion, the pressure for yen depreciation will persist, and there is even a possibility of reaching 158.

Central Bank Policy Hints at Appreciation Potential

However, the market’s overly bearish outlook on the yen may be overdone. JPMorgan analyst Junya Tanase pointed out that although Sanae Takaichi’s election has boosted expectations of easing policies, the Bank of Japan’s policy guidance has not changed. The market’s expectation of a rate hike by the BOJ may have been overly tempered.

According to the latest Bloomberg survey, 50% of economists forecast that the Bank of Japan will start raising interest rates in December. Meanwhile, the Federal Reserve still has room for two rate cuts this year, and the divergence in interest rate differentials between Japan and the US remains favorable for yen appreciation. Suzuki from Sumitomo Mitsui Banking Corporation added that, under the premise of moderate fiscal stimulus, the yen will experience a gradual appreciation.

Market Expectations and Policy Divergence

[Image source: TradingView; USD/JPY) expected trend in the second half of 2025(]

Currently, the market faces an interesting contradiction: short-term fiscal stimulus policies have pushed the yen down to around 155, but the long-term divergence between central bank rate hike expectations and Fed rate cuts will create conditions for yen appreciation. Sanae Takaichi’s attitude toward the Bank of Japan’s monetary policy will be a key variable in determining the future trend. In other words, this wave of yen depreciation is the result of political risk pricing; once this risk is digested, the logic for yen appreciation will regain the upper hand.