Yen Depreciation Alert: Central Bank Rate Hike as a Key Factor, Can USD/JPY Hold at 160?

Economic Stimulus Plan Sparks Currency Depreciation Risks

On November 21, the Japanese Cabinet approved a large-scale economic support plan totaling 21.3 trillion yen. The funds will mainly be used for price relief measures (11.7 trillion yen) and key industry investments. As the government bond issuance expands, the market is reassessing Japan’s long-term fiscal pressures, with investors paying closer attention to the central bank’s policy direction.

Driven by these expectations, the yield on Japan’s 10-year government bonds surged to 1.842% on November 20, reaching a new high since 2008. Meanwhile, the USD/JPY broke through 157.89, hitting a 10-month high. The continued weakening of the yen has become a hot topic in the market.

Import Inflation Pressures Rise, Central Bank Faces Dilemma

Bank of Japan Governor Ueda Kazuo recently warned that a weak yen could further increase import costs, prompting companies to raise wages and prices, forming a new inflation cycle. He emphasized that the transmission mechanism of exchange rate fluctuations to prices is strengthening, and the central bank must remain vigilant. This statement implies that the December interest rate hike decision has become a key consideration.

ANZ Bank foreign exchange strategist Rodrigo Catril pointed out that historical intervention experience shows that pure currency market interventions are difficult to sustain. Unless the Bank of Japan takes interest rate hikes in conjunction with fiscal discipline, breaking through the 160 level for USD/JPY is only a matter of time. Once the central bank opts to raise rates, the exchange rate may retreat below 150.

The 160 Level Becomes Market Focus

Currently, the 160 technical level is a key point of observation for investors. Japanese authorities have previously intervened multiple times in this range last year. However, without substantial monetary policy adjustments, simple price defense alone is unlikely to change the yen’s trend. The market generally believes that the Bank of Japan’s December decision will determine the next move for USD/JPY.