The yen's depreciation pressure intensifies! 21.3 trillion yen stimulus package triggers a chain reaction in exchange rates

Bank of Japan Faces a Dilemma

The Japanese government officially approved an economic support package on November 21, totaling 21.3 trillion yen, the largest additional expenditure since the end of the pandemic. Of this, 11.7 trillion yen is allocated for price relief, accounting for over 50%, reflecting the authorities’ high concern over inflationary pressures.

The funding structure of this plan is quite complex—relying both on tax revenue growth driven by inflation and on the issuance of additional government bonds. The Japanese Cabinet is expected to approve the supplementary budget as early as November 28, aiming for parliamentary approval before the end of the year.

Rising Bond Yields Drive the US Dollar Appreciation

Immediately following the policy announcement, a chain reaction occurred. On November 20, the yield on Japan’s 10-year government bonds surged to 1.842%, the highest level since the 2008 financial crisis. As a result, USD/JPY rose to 157.89, hitting a new 10-month high.

Market participants have noticed that the yen’s depreciation is accelerating. Investors are closely watching the 160 psychological threshold, a level that has previously been a target for Japanese authorities’ interventions multiple times last year.

Ueda Kazuo Hints at Possible Rate Hike in December

The latest remarks from Bank of Japan Governor Ueda Kazuo have become a focal point. He pointed out that the continued weakening of the yen is raising import costs, prompting companies to increase wages and prices. More importantly, he emphasized that the exchange rate’s pass-through effect on prices is more pronounced than in previous years, and the central bank must remain vigilant.

These statements are interpreted by the market as a clear signal of a potential rate hike, especially for the December policy meeting. If the BOJ chooses to raise its policy interest rate, it will be a key factor in changing the USD/JPY trend.

Rate Hike vs. Tolerance—Market Bets

ANZ Bank’s foreign exchange strategist Rodrigo Catril outlined the core logic: “Historical intervention cases show that purely market-based interventions, without fiscal or monetary discipline, will only attract more speculators to short the yen.”

His conclusion is twofold: if the BOJ raises rates, USD/JPY is expected to fall below 150; if it maintains the current stance, yen depreciation beyond 160 is only a matter of time.

In the current situation, Japan faces a dilemma between stimulating the economy and stabilizing the exchange rate. Large-scale fiscal support will increase debt pressure and further weaken the yen, while rate hikes could suppress economic growth but improve the currency’s value. Ueda Kazuo’s December decision will directly determine the future direction of the yen.