The Japanese Yen breaks through the 156 level against the US dollar! Japan's fiscal stimulus policies trigger a depreciation chain reaction

Japan’s new Prime Minister Sanae Takaichi’s economic stimulus plan is reshaping the foreign exchange market landscape. As the budget surpasses 17 trillion yen, the yen remains under continuous pressure, with USD/JPY approaching the 156 level, and market expectations for a breakthrough of the 160 mark are growing.

Fiscal policy outweighs rate hikes, the fundamental reason for yen’s pressure

The policy tilt of the Takaichi government has triggered a chain reaction in the market. Her economic advisor Goushi Kataoka explicitly stated that fiscal spending takes priority over the normalization of central bank monetary policy, which directly weakens investors’ expectations for a rate hike by the Bank of Japan. Data shows that the market’s probability estimate for a BOJ rate hike in December is only 28%, and the chance of a hike in January next year is just 42%.

This shift in policy signals has immediately transmitted to the foreign exchange market. Although BOJ Governor Kazuo Ueda had hinted that a rate hike could possibly start as early as December, the new government’s economic priorities have significantly lowered this expectation. Investors are selling yen and buying dollars to test the tolerance of the Japanese government.

Data signals reinforce depreciation expectations

Market pressure is already evident in the bond market. On November 19, the yield on Japan’s 10-year government bonds rose to 1.78%, reaching a new high since 2008. More notably, the weak performance of the 20-year government bond auction suggests concerns about the long-term fiscal sustainability.

Nomura Securities’ forex analyst pointed out that investors have clearly realized that fiscal expansion will delay the normalization process of the central bank, leading to a systematic shorting of the yen. This force is far more decisive than traditional policy signals.

Is 160 no longer distant? What do experts say

Francesco Pesole, a forex strategist at ING, believes that speculative capital is still clearly betting on a rise in USD/JPY, and the government’s warnings have gradually weakened their market constraints. He predicts that in the coming days, the yen could face further upward pressure, with a minimum push towards the 160 level.

Barclays economists are more explicit. Given the Takaichi government’s inclination towards an “Abenomics” style policy framework, they judge that the yen will continue to face depreciation pressure. Further fiscal expansion is expected to keep USD/JPY at high levels, and they recommend investors continue to go long on USD/JPY in this trend.

Investors sensitive to the yen should closely monitor the details of Sanae Takaichi’s economic stimulus plan announced on November 21. The scale, timeline, and financing methods will directly influence the subsequent trend of the exchange rate. The risk of a significant breakdown of the yen is gradually increasing.