Mr. Yen is optimistic about appreciating to 130 in 2025, but the short-term exchange rate faces a test at the 150 barrier.

The Bank of Japan’s policy shift has triggered market turmoil. As new Prime Minister Shigeru Ishiba signals a dovish stance, the yen has underperformed in October, falling 4% against the US dollar, with a short-term test of 150 likely. This trend has starkly contrasted with market expectations, as hedge funds initially bet on Ishiba adopting a more aggressive rate hike stance, only to be caught off guard by the policy reality.

Yujiro Goto, head of FX strategy at Nomura Securities, pointed out that the change in policy environment, coupled with stronger-than-expected US employment data, further dampened expectations of a significant rate cut by the Federal Reserve. This has noticeably increased the short-term likelihood of the yen testing 150 against the dollar. Mizuho Securities’ chief strategist Shoki Omori is even more pessimistic, believing the exchange rate could potentially surge to 155.

However, former Japanese Finance Minister Heizo Takenaka, known as “Mr. Yen,” holds a completely different view. This figure, renowned for accurately managing currency markets between 1997 and 1999, is currently the director of the Japan Institute for Economic Research. He stated that although the yen may face continued downward pressure in the short term, from a longer-term perspective, the US economy might experience a moderate slowdown, while the Japanese economy is expected to demonstrate stronger growth momentum. Based on this judgment, he considers it reasonable to expect the yen to appreciate to around 130 by 2025.

The key factor determining the medium-term trend of the yen remains the US-Japan interest rate differential. Analysts observe that the Japanese government and central bank have taken a cautious approach to rate hikes, making significant breakthroughs unlikely in the near future. This means that for quite some time, US economic data and the Federal Reserve’s monetary policy will continue to dominate the fluctuations of the yen.