Yen Plummets, Stimulus Plan Anticipated: Tokyo Faces Fiscal Challenge

The yen remains one of the major currencies under significant pressure in 2025. Its depreciation worsened following the publication of a Japanese GDP decline in Q3, fueling expectations of a substantial fiscal support program. Various factions of the ruling party are discussing a plan ranging between 17 and 25 trillion yen, aimed at countering the slowdown and supporting domestic demand.

This prospect of stimulus immediately put bond markets on edge. Yields on 30-year Japanese Government Bonds (JGBs) rose to 3.35%, a high level in Japan's recent history, reflecting a dual effect: the reassessment of the state’s financing needs and fears of sustained fiscal easing.

In this context, the Japanese currency depreciated to 155.38 yen per dollar, a level deemed uncomfortable by the authorities. While the weak currency does enhance exporters' competitiveness, it also increases the cost of imports—a sensitive issue in a country reliant on raw materials.

Lee Hardman from MUFG Bank notes that this pressure is not solely due to speculation: it reflects a growing misalignment between expansive fiscal policy and the very gradual normalization of monetary policy. The contrast remains striking with the United States, where the Fed is beginning to consider rate cuts.

A Difficult Balance to Maintain

In response to the rapid movement, Japanese authorities have intensified their public statements. Finance Minister Shunichi Katayama expressed concern over the yen's volatility and reiterated that the government is « closely monitoring » currency movements. The Governor of the Bank of Japan, Kazuo Ueda, reaffirmed the intention to proceed with a gradual adjustment of monetary policy, despite political pressures.

These interventions have provided limited relief, without dispelling the perception of an unfavorable interest rate differential. Markets believe the BoJ is moving too slowly toward full normalization, as budgetary spending is set to increase.

On the American side, the tone is more accommodating. Investors are awaiting the release of the FOMC minutes in an environment increasingly marked by the possibility of a rate cut as early as December. Several Fed officials have recently spoken about a cooling job market, while the Nasdaq's performance suggests a kind of fatigue after a prolonged bullish cycle.

The highly anticipated results from Nvidia could be a key signal for tech stocks and, more broadly, for global risk appetite. In this landscape, the yen has become the barometer of international confidence in Japan's ability to maintain a credible fiscal path while initiating a slow exit from an ultra-accommodative monetary regime.

Between pressure on yields, the risk of direct intervention, and expectations from American markets, Tokyo is navigating a narrow path—that of a country compelled to stimulate its economy without losing control over its currency.