## Yen Exchange Rate Falls Toward 160 Level: Takashi City Reshuffle Sparks Policy Expectations, Central Bank Rate Hike Clues Emerge

The Japanese yen has continued to weaken at the start of this year, with the USD/JPY exchange rate approaching the 159 mark. Behind this depreciation wave are market expectations of a new round of fiscal expansion in Japan and uncertainties regarding the central bank's monetary policy. As Japanese Prime Minister Sanae Takaichi announced the dissolution of the House of Representatives for an early general election on the 23rd, the future trend of the yen has become a key focus for investors.

### Takaichi Alliance Governance Expectations Increase Yen Selling Pressure

Since the new cabinet led by Sanae Takaichi took office, market expectations for its expansionary fiscal policies have significantly increased. Commonwealth Bank of Australia currency strategist Carol Kong pointed out that traders have already priced in the expectation that "the Takaichi alliance will win more seats in the House of Representatives," which directly boosts the yen selling momentum.

As a new round of elections approaches, the market generally believes that if the Takaichi alliance wins more seats, the Japanese government will have greater room to push forward a new round of fiscal stimulus plans. This expectation of future fiscal easing has led investors to reduce holdings of yen assets and shift toward strong currencies like the US dollar.

### Fiscal Concerns and Central Bank Rate Hike Pace Diverge, Yen Falls into Dilemma

The lagging pace of the Bank of Japan's rate hikes has further weakened the yen. Lee Hardman, analyst at Mitsubishi UFJ Financial Group, stated that concerns over fiscal deficits contrast with the central bank's relatively accommodative monetary stance, making the yen particularly vulnerable to further pressure at the beginning of the year.

On January 12, Japanese Finance Minister Shunichi Katayama held talks with U.S. Treasury Secretary Janet Yellen, both expressing clear concerns over the unilateral weakening of the yen. The signals from this high-level meeting indicate that Japanese authorities have begun preparing for potential currency intervention.

### Government Intervention Critical Point and Time Window

According to ANZ Bank's foreign exchange chief Hiroyuki Machida, the likelihood of Japanese authorities intervening depends on the specific level the exchange rate reaches. "Once USD/JPY hits around 160, intervention could happen at any time, but before the election results and fiscal policy directions become clear, the selling pressure on the yen may continue," he said.

Looking back at 2024, when the yen approached 160, the Japanese government intervened multiple times. Whether this recent wave of depreciation will trigger similar policy responses depends on whether the exchange rate breaks through the critical 160 level.

( The Central Bank Rate Hike Becomes a Key Variable, April Becomes Observation Window

On January 23, the Bank of Japan will announce its interest rate decision. Although the market generally expects the bank to keep rates unchanged, Governor Kazuo Ueda's wording and forward guidance during the press conference are particularly crucial.

Former BOJ member Masao Sakurai pointed out that the uncertainty surrounding fiscal policy under Sanae Takaichi's administration will further dampen the yen. Against this backdrop, the BOJ may accelerate its rate hike cycle as early as April. The latest overnight swap data shows that traders currently estimate about a 40% probability of the BOJ raising rates in April—this figure has increased compared to previous levels, reflecting growing market expectations for a policy shift.

Whether the yen can stabilize around 160 ultimately depends on two factors: first, whether the Japanese government intervenes in the currency market; second, whether the central bank accelerates rate hikes as market expectations suggest after the election concludes. Every recent economic data point and policy signal will be a crucial clue in determining the yen's future direction.