Yen rally accelerates: exchange rate approaches 153, central bank rate hike expectations become key

The Japanese yen has recently been rising consecutively, with the USD/JPY approaching the 153 level. Behind this yen rally are not only support from Japan’s political situation but also market expectations of a change in the central bank’s monetary policy. After the ruling coalition led by Sanae Takaichi achieved an overwhelming victory in the general election on February 11, market bets on a rate hike by the Bank of Japan (BOJ) intensified, becoming a key driver of the yen’s appreciation.

Policy Favorability Boosts Yen, Rate Hike Expectations Significantly Accelerate

Sanae Takaichi’s attitude following her election victory has created favorable conditions for the yen’s appreciation. The new Prime Minister explicitly stated that they would not issue deficit bonds to finance the consumption tax reduction policy, alleviating market concerns over Japan’s excessive fiscal expansion and directly supporting the yen’s upward trend. Meanwhile, Japanese Finance Minister Shōzō Katō issued a tough signal, indicating that intervention to curb abnormal exchange rate movements, including direct market intervention, is not ruled out.

More critically, market expectations for the BOJ’s policy have shifted. The latest forecasts from U.S. banks suggest that the BOJ will raise interest rates in April rather than June as previously expected, with a 25 basis point increase. This earlier-than-expected signal has caused ripples in the market, prompting investors to reassess the attractiveness of yen-denominated assets and further fueling the yen’s rally.

BOJ Rate Hike Expectations in April Heat Up; Will the Exchange Rate Break 150 or Rebound?

Regarding the future direction of the yen’s appreciation, market institutions are showing clear divergence. Mizuho Securities remains pessimistic, believing that the long-term depreciation trend of the yen has not changed, and the exchange rate could further move toward a range of 160 to 165 yen per dollar. Nomura Securities also issued warnings; although Sanae Takaichi’s victory has led to a more moderate stance, the market might restart the “Takaichi trade” and sell yen again. According to Nomura’s analysis, once USD/JPY approaches the 160 level, the risk of Japanese government intervention will sharply increase.

In contrast, Deutsche Bank has already closed its short yen positions and currently holds a neutral stance on the yen. The bank believes that Japanese authorities may introduce more market-friendly policies, and the previously promised consumption tax reduction could be moderately delayed, providing some buffer for the yen.

Yen Appreciation: The Battle Between Rate Hike Expectations and Policy Support

Although opinions among institutions vary, a market consensus is forming: a BOJ rate hike in April has become highly probable, which would directly support the yen’s upward momentum. If the hike proceeds as scheduled, breaking the 150 level for USD/JPY will no longer be a distant possibility but an imminent prospect.

However, it is important to note that the sustainability of the yen’s appreciation depends on multiple factors: the actual pace of BOJ policy adjustments, the progress of Japan’s fiscal reforms, and the Japanese government’s stance on the exchange rate. Until these factors become clearer, investors should closely monitor policy developments and remain flexible in adjusting their yen appreciation expectations.

Currently, the market is in a phase of rapidly revising upward expectations for a BOJ rate hike, and the yen’s upward momentum continues to build. The key upcoming event will be the April BOJ decision; whether the yen’s rally can persist will depend on whether the central bank takes the expected step of raising interest rates.