The Japanese Yen faces immense depreciation pressure! The Bank of Japan's rate hike in December is imminent, and market focus is on the 160 level.

The recent remarks by Bank of Japan Governor Kazuo Ueda have sparked significant market attention — the continued weakening of the yen is driving up inflationary pressures. As import prices rise, companies are beginning to increase wages and product prices, creating a vicious cycle that the central bank finds difficult to avoid.

¥21.3 trillion in massive stimulus, yen depreciation accelerates

On November 21, the Japanese Cabinet approved the largest economic stimulus package in history, with a budget of ¥21.3 trillion. Of this amount, ¥11.7 trillion is allocated specifically for price relief, while the rest is directed toward supporting key industries. The funding relies on increased tax revenues and the issuance of new government bonds.

Once announced, the market reaction was immediate. On November 20, the yield on 10-year Japanese government bonds surged to 1.842%, a 15-year high. Meanwhile, USD/JPY rose steadily to 157.89, reaching a 10-month high. The massive fiscal expenditure further heightened investor concerns about yen depreciation.

Exchange rate depreciation triggers chain reactions, central bank adopts hawkish stance

The rapid depreciation of the yen has not only increased import costs but also triggered a series of economic issues. Ueda emphasized that the impact of exchange rate fluctuations on prices has far exceeded previous levels, and the central bank must closely monitor the situation. His tone clearly signals that a rate hike in December has become the expected policy direction among many market participants.

The central bank’s move to raise interest rates will be a key step in reversing the yen’s depreciation trend. If implemented, it could enhance the attractiveness of yen-denominated assets and support the exchange rate.

¥160 becomes a market watershed, investors watch closely

Currently, the ¥160 level in USD/JPY has become a focal point for the market. Japanese authorities have previously intervened multiple times at this level last year, but with limited effect.

ANZ Bank forex strategist Rodrigo Catril’s analysis is worth noting. He pointed out that intervention alone cannot stabilize the exchange rate long-term; only solid fiscal or monetary policies can be effective. In other words, if the Bank of Japan chooses to raise interest rates in December, USD/JPY is expected to retreat below 150; conversely, breaking through ¥160 will become a highly probable event.

Market divergence: rate hike expectations vs. yen depreciation dilemma

An interesting contrast has emerged in the current market — on one hand, the Bank of Japan faces dual pressures of inflation and yen depreciation, with calls for rate hikes growing louder; on the other hand, the massive stimulus approved by the government may continue to push the yen lower. This policy tension will directly determine the future trend of the yen.

For investors, the December central bank meeting will be a critical moment. Whether a rate hike occurs or not will largely reshape expectations of yen depreciation and influence the overall landscape of Asian currencies.