Is the Japanese Yen's depreciation unstoppable? The expectation of interest rate hikes is the key, with the 160 level approaching.

The US dollar hit a 10-month high against the Japanese yen in November, breaking through 157.89 in one leap. The market generally believes that if the Bank of Japan cannot take action, the 160 level may only be a matter of time.

Fiscal Stimulus Boosts Bond Yields, Yen Under Pressure

On November 21, the Japanese government announced an additional expenditure plan of 21.3 trillion yen, the largest post-pandemic scale. The plan includes price relief measures and investments in key sectors, with price relief accounting for the largest portion at 11.7 trillion yen, aimed at addressing the ongoing rising price pressures.

The fiscal expenditure is mainly funded by expected tax revenue growth and new bond issuance. The Japanese Cabinet plans to approve the supplementary budget by November 28, with the goal of passing it through parliament before the end of the year. The market reacts sensitively to the massive fiscal spending—on November 20, the yield on 10-year Japanese government bonds soared to 1.842%, a high since 2008, directly driving the USD/JPY(USD/JPY) exchange rate higher.

Central Bank Governor Signals Rate Hike, December Decision Focus

Bank of Japan Governor Kazuo Ueda recently stated that the continued weakening of the yen is further pushing up price levels. The cost of imported goods has risen due to exchange rate depreciation, and companies are inclined to raise wages and product prices, creating a vicious cycle.

Ueda emphasized that the transmission mechanism of exchange rate fluctuations to prices is becoming increasingly evident, and the central bank must remain vigilant. This statement is interpreted by the market as an important signal of a potential rate hike in December—raising interest rates would help the yen recover and ease import inflation pressures.

160 as a Defensive Line, Breakthrough May Be Close

Japanese authorities have intervened multiple times near the 160 level last year. ANZ Forex Strategist Rodrigo Catril pointed out that historical experience shows that market interventions alone are difficult to sustain long-term; substantial fiscal or monetary policy adjustments are necessary to change the trend.

He further analyzed that if the Bank of Japan announces a rate hike in December, the USD/JPY is expected to retreat below 150; conversely, if the BOJ maintains an easing policy, breaking through 160 is unstoppable. The market is closely watching the central bank’s next move, and the 160 level will become a key testing ground for Japan’s policy stance.