The Japanese Yen hits new lows! Under expectations of fiscal stimulus, how much room is there for the exchange rate to rise?

**Exchange Rate Trend Analysis: Yen Under Pressure, Reaching Over a Decade High**

USD/JPY broke through the 156 level in mid-November, marking the largest depreciation of the yen since the 2008 global financial crisis. This trend is driven not by a single factor, but by the collision of Bank of Japan policy expectations and government economic stimulus.

Since Sanae Takaichi took office as Japan’s Prime Minister, the yen has entered a sustained weakening cycle. According to the latest market data, investor expectations for a BOJ rate hike in December have fallen to 28%, with a 42% chance of a rate hike in January next year. This reflects widespread market anticipation of delayed monetary policy tightening.

**Fiscal Expansion Disrupts Rate Hike Pace**

The Takaichi government plans to introduce an economic stimulus package exceeding 17 trillion yen on November 21. This move directly conflicts with the earlier signals from BOJ Governor Kazuo Ueda, who indicated a "possible rate hike as early as December." Economic advisor Goushi Kataoka publicly stated that fiscal policy should take priority over monetary normalization, implying that hopes for a rate hike before March next year are slim.

This policy uncertainty has directly impacted market sentiment. Nomura Securities FX strategist Yuji Goto pointed out that investors have clearly recognized that fiscal expansion will delay the rate hike cycle, leading to an accelerated sell-off of the yen. Meanwhile, the 10-year government bond yield rose to 1.78% on November 19, a level not seen since 2008, and weak results in the 20-year bond auction further deepened market concerns over Japan’s long-term fiscal sustainability.

**Diverging Views, 160 Level Becomes Focus**

Barclays economists believe that, given Sanae Takaichi’s policy stance leaning toward a loose "Abenomics" style, the yen will continue to face downward pressure. They advise investors to continue going long USD/JPY.

Francesco Pesole, FX strategist at ING, is more aggressive, indicating that speculators are still clearly inclined to test the upper tolerance limit of the Japanese government. Government verbal warnings are losing their market restraint. He expects further upward pressure in the coming days, with the exchange rate possibly approaching the 160 level.

**Market Sentiment and Policy Testing**

Behind this exchange rate trend lies a deeper dilemma: the Japanese government is attempting to stimulate the economy to boost growth, but fiscal expansion inevitably leads to yen depreciation; while the BOJ has an inclination to raise rates, political support is lacking, significantly constraining the room for rate hikes. In this policy vacuum, speculative capital dominates the market, continuously testing the red lines of government intervention.

Currently, the Japanese government has not actively intervened below 156, leading the market to believe that it may allow the yen to weaken toward 160. This expectation has become a self-fulfilling prophecy, attracting more selling pressure.

Future exchange rate movements will depend on two variables: clarification of the BOJ’s rate hike timetable and the actual implementation of government fiscal stimulus measures. Until these two factors become clearer, USD/JPY is likely to fluctuate within a high range, with a breakthrough of the 160 level becoming the next consensus in the market.