The Japanese Yen continues to weaken! The central bank's easing signals strengthen, and investors are eyeing the 160 integer level.

The Bank of Japan’s rate hike expectations continue to be pushed back, coupled with the government’s large-scale fiscal expenditure plan about to be launched, leading the market to generally view the yen’s outlook pessimistically. Several strategists predict that the yen still has further downside potential, with the 160 level possibly becoming the next test.

Delay in Rate Hike Reinforces Depreciation Expectations

Although BOJ Governor Kazuo Ueda has hinted that a rate hike might occur in December, policy signals are becoming increasingly ambiguous. According to the latest market forecasts, the probability of a rate hike by the BOJ in December is only 28%, while the chance of a hike in January next year is 42%, indicating that the easing cycle has become a market consensus.

Sanae Takaichi, Japan’s Prime Minister Fumio Kishida’s economic advisor, explicitly stated that fiscal spending should take precedence over monetary policy adjustments, and the likelihood of the central bank raising interest rates before March next year is extremely low. This statement has thoroughly dampened market expectations of a recent rate hike.

Massive Stimulus Plan Sparks Depreciation Wave

On November 19, Japan’s 10-year government bond yield rose to 1.78%, hitting a new high since 2008. On the same day, Japan’s 20-year government bond auction results were disappointing, raising concerns among investors that the government will launch an ultra-large-scale fiscal expenditure.

Sanae Takaichi’s economic stimulus plan will be announced on November 21, with a budget expected to exceed 17 trillion yen. This further reinforces market expectations of yen depreciation. Yuji Goto, FX strategist at Nomura Securities, pointed out: “Investors have already sensed the trend of fiscal expansion and are worried that the Bank of Japan will delay its rate hike plans, leading to a significant sell-off of the yen.”

Speculative Funds Continue to Test Government’s Bottom Line

Barclays economists believe that Sanae Takaichi’s policy stance is close to “Abenomics,” and the yen will continue to be under pressure. Given the yen’s sensitivity to fiscal risks, further fiscal expansion is expected to keep USD/JPY at high levels. The institution recommends investors continue to favor the USD/JPY.

Francesco Pesole, FX strategist at ING Group, stated: “Speculators are still actively buying USD/JPY, continuously testing the Japanese government’s tolerance. The effectiveness of verbal warnings from the government is increasingly limited.” He predicts that the yen will face further downward pressure, with the 160 level possibly becoming a short-term bottom.

Currently, USD/JPY is approaching the 156 level. Will the yen continue to depreciate? Based on central bank policy signals, the scale of fiscal expenditure, and ongoing speculative inflows, the yen is unlikely to reverse its downward trend in the short term.