Yen trend takes a dramatic turn! USD/JPY approaches 160, December central bank decision becomes crucial

The USD/JPY exchange rate hits a new high again. On November 20, USD/JPY surged to 157.89, marking the highest level in nearly ten months. What is driving this rally? The policy signals from the Japanese government and the central bank are diverging.

21.3 Trillion Yen Package Sparks Market Reaction

The Japanese Cabinet approved a massive fiscal support package on November 21 — a total of 21.3 trillion yen in economic relief, the largest since the pandemic. Of this, 11.7 trillion yen is allocated for price subsidies, with the remaining funds directed toward key sector development.

Where does this money come from? The funds will be raised through increased tax revenue driven by inflation and new government bonds issuance. The Japanese Cabinet plans to approve the supplementary budget before November 28, completing the parliamentary approval process by the end of the year.

Once this substantial new expenditure was announced, the market reacted immediately — on November 20, the yield on Japan’s 10-year government bonds soared to 1.842%, a 15-year high. This is a clear signal of the yen’s weakening trend.

Central Bank Attitude Becomes a Key Exchange Rate Indicator

Bank of Japan Governor Ueda Kazuo’s recent remarks are noteworthy. He pointed out that the yen’s weakness is pushing up import prices, prompting companies to raise wages and product prices. More importantly, he emphasized that “exchange rate fluctuations have a more pronounced impact on prices than in the past,” and the central bank must remain vigilant.

These comments suggest that the possibility of a rate hike in December is increasing.

160 Becomes a Market Focus

Traders are now watching the 160 level in USD/JPY. This level is not arbitrary — Japanese authorities have intervened multiple times in this range last year, attempting to stabilize the exchange rate.

ANZ Forex Strategist Rodrigo Catril’s view is worth noting: “History shows that pure market intervention has limited effect unless combined with fiscal or monetary policy adjustments. If the central bank does indeed raise interest rates, USD/JPY could fall back below 150; otherwise, breaking through 160 is almost inevitable.”

The Future Path of the Yen Trend

The current situation boils down to a simple binary choice: either the central bank takes action to raise interest rates in December, coupled with fiscal discipline; or the yen continues to weaken, with USD/JPY ultimately breaking through the psychological level of 160. The market is waiting for this decision to be made.