## Yen Depreciation Accelerates, No Room for Rate Hikes by the Central Bank This Year? Three Major Institutions Raise USD/JPY Target Prices

The yen has recently fallen into a depreciation dilemma. The risk of a US government shutdown has eased, risk aversion has rapidly cooled, and coupled with the Japanese government issuing a "rate hike warning" to the central bank, the yen exchange rate hit a nine-month low in mid-November, with USD/JPY( continuing to rise.

**Policy signals stacking up, suppressing yen depreciation pressure**

The key to the chain of events lies in the synchronized release of two signals. On one hand, on November 10, the US Senate voted to pass a temporary funding bill, indicating that the US government is likely to resolve the shutdown crisis, and market risk appetite has quickly increased, leading to a decline in demand for safe-haven currencies like the yen. On the other hand, Japanese Prime Minister Fumio Kishida has repeatedly issued signals of "cautious rate hikes," with economic advisor Takashi Wada explicitly stating that the Bank of Japan should avoid making a rate hike decision in December, at least delaying action until January next year.

What does this policy shift imply? The short-term interest rate policy space for the Bank of Japan has been significantly compressed. Against the backdrop of the Kishida government pushing for active fiscal stimulus, the central bank faces political pressure, making a rate hike this year almost impossible, further weakening the yen's interest rate support.

**Collective upward revision of exchange rate forecasts, depreciation trend confirmed**

Market expectations for yen depreciation have already formed a consensus. J.P. Morgan economists have significantly raised their USD/JPY target range: expected to surge to 156 by the end of 2025 (previous estimate 142), and fall back to 152 by the end of March 2026 (previous estimate 139). This suggests that the USD could appreciate against the yen by over 10% in the next year.

Mizuho Securities' forecast is even more aggressive, with target prices of 156 for December 2025 and 158 for March 2026, aligning with J.P. Morgan's year-end expectations but with a deeper depreciation outlook for the first quarter of next year. The views of these two major financial institutions are highly aligned, reflecting strong market confirmation of the yen's depreciation trend.

**Market sentiment fragile, yen selling pressure persists**

More noteworthy is the market's psychological aspect. Analysts at MUFG Bank pointed out that before the Kishida cabinet finalizes its economic stimulus plan (scheduled for completion by November 21), market caution regarding active fiscal policy remains difficult to dispel. This uncertainty can easily translate into selling pressure on the yen.

In other words, when the government prepares for large-scale fiscal spending, investors worry that the central bank will be forced to maintain an accommodative monetary policy for longer, pushing down the yen's value. This self-fulfilling expectation mechanism is amplifying the yen's depreciation. In the coming weeks, as the fiscal plan progresses, the yen may continue to face selling pressure.