The Japanese yen exchange rate stalls under the stimulus of 21 trillion yen, and the Bank of Japan's interest rate hike in December becomes the focus.

Bank of Japan Governor Kazuo Ueda recently issued a warning: the ongoing depreciation of the yen is bringing inflationary pressures that can no longer be ignored. Imported goods are rising in price due to the weakening exchange rate, and companies are increasingly raising wages and product prices in response. This statement hints that the central bank is contemplating a rate hike in December.

Economic Plan Reaches Post-Pandemic Record High, Intensifying Yen Depreciation Expectations

On November 21, the Japanese government officially approved a ¥21.3 trillion economic stimulus package, the largest additional expenditure since the COVID-19 pandemic. The plan focuses on two main areas: first, price relief measures (totaling ¥11.7 trillion) to directly address recent inflation issues; second, investments in key industries and infrastructure.

Funding sources include two parts: one is the natural revenue increase from post-pandemic tax growth, and the other is additional government bond issuance. The Japanese government plans to pass the supplementary budget by November 28 at the latest, seeking final parliamentary approval before the end of the year.

Exchange Rate Moves, USD/JPY Hits Ten-Month High

Following the announcement of the large-scale fiscal stimulus, the market responded immediately. On November 20, the yield on 10-year Japanese government bonds rose to 1.842%, the highest level since the 2008 financial crisis. The USD/JPY surged to 157.89, reaching a ten-month high.

This rally reflects the core market logic: large government spending leads to supply shortages, further pushing up prices and weakening the yen.

160 Level Becomes a Key Threshold, Rate Hike and Intervention Are Two Major Variables

The round number of 160 holds special significance for Japanese authorities. Last year, the Japanese government intervened directly in the forex market multiple times at this level to stabilize the yen. Now, as USD/JPY approaches this level again, the market awaits the next move from policymakers.

NAB Foreign Exchange Strategist Rodrigo Catril pointed out that historical experience shows that pure intervention in the forex market has limited effectiveness. Unless accompanied by strict fiscal or monetary discipline, intervention can easily become a catalyst for shorting the yen. If the Bank of Japan indeed raises interest rates in December, USD/JPY could return below 150; but if the BOJ remains on hold, breaking through 160 is highly likely.

In other words, the future trend of the yen exchange rate depends on the central bank’s policy resolve. Ueda’s comments suggest a firm stance, with expectations of a rate hike in December gradually increasing.