Last week, USD/JPY remained in a narrow range around the ¥156 level, partly because it was Thanksgiving week in the United States.
In my column last week, I argued that the outlook for USD/JPY depends on
(1) whether the Takaichi administration is prepared to recalibrate its expansionary fiscal stance—which triggered the initial bout of yen weakness and
(2) whether the BOJ will move forward with a rate hike at its December meeting.
Regarding fiscal policy, there has naturally been no move toward correction; on November 28, a supplementary budget worth 18.3 trillion yen was approved by the Cabinet.
The government emphasizes that the total issuance of government bonds for fiscal 2025 is expected to be around 40 trillion yen, falling below the 42.1 trillion yen in fiscal 2024 (this appears to be what the government refers to as “responsible”).
However, the additional issuance from the supplementary budget amounts to 11.7 trillion yen—a significant expansion of 5 trillion yen from last year’s 6.7 trillion yen—making it clear that this is indeed “proactive fiscal policy.”
How the Takaichi administration’s fiscal policy appears to foreign investors is clearly expressed in The Economist’s November 27 article titled “Japan’s big-spending Takaichinomics is ten years out of date.”
The article presents a chart showing the rise in 10-year bond yields and the depreciation of the yen since October, and harshly criticizes her approach: “In an era of higher inflation and higher bond yields, her policies are as out of date as tired reboots of Hollywood franchises.”
