Yen appreciates for three consecutive days, breaking through 153; expectations of central bank interest rate hikes become the main driving force

The Japanese yen continues to appreciate. Recently, the USD/JPY exchange rate has been rising steadily, breaking through the 153 level. The market generally believes that this upward trend is driven by two main factors: rising expectations of Bank of Japan interest rate hikes and signals of political stability from the new government. This change also reflects a global reassessment of Japan’s economic and policy outlook.

Rate hike expectations fuel the yen’s strength

Expectations of monetary policy are reshaping market perceptions of the yen. The latest forecasts from U.S. banks indicate that the Bank of Japan may raise interest rates as early as April instead of June, with a projected 25 basis point increase. This early rate hike expectation has quickly become a key support for the yen’s appreciation.

Why does the expectation of a rate hike boost the yen? The logic is simple—higher interest rates mean increased yields on yen-denominated assets, attracting more international capital inflows into Japan, which in turn drives up demand for the yen. The market’s changing attitude toward the central bank’s policy is rewriting the story of yen’s rise and fall.

Political stability signals and market intervention expectations heat up

Positive political signals also play a significant role. The ruling coalition led by Prime Minister Sanae Takaichi achieved an overwhelming victory in the recent election, creating a favorable environment for the yen’s appreciation. Takaichi also stated that she would not issue deficit bonds to fund consumption tax cuts, easing market concerns over excessive fiscal expansion and further supporting the yen’s rise.

However, the government’s stance on the exchange rate warrants attention. Japanese Finance Minister Shigeyuki Katō publicly stated that intervention to prevent rapid currency movements is not out of the question. This suggests that if the yen appreciates too quickly, authorities may step in, adding an important variable to the outlook for yen’s appreciation.

Diverging institutional opinions: can the 150 level hold?

Faced with the yen’s appreciation, investment institutions are divided sharply, reflecting high market uncertainty about the future trend.

Mizuho Securities maintains a relatively bearish stance, believing that the yen’s rise is a short-term phenomenon and that the long-term trend will face downward pressure. The firm predicts USD/JPY could move toward the 160–165 range, implying potential further weakness for the yen.

Nomura Securities issues a warning. Although Takaichi’s post-election comments are moderate, the market may restart “Takaichi trading”—speculative trades based on expectations of policy moves by politicians—leading to further yen selling. The firm warns that if USD/JPY approaches the 160 level, the risk of intervention by Japan’s Ministry of Finance will significantly increase.

In contrast, Deutsche Bank remains the most cautious. The bank has already reduced its short yen positions and now holds a neutral view. Deutsche Bank notes that the Japanese government may introduce more market-friendly policies, and previously promised consumption tax cuts could be delayed, all of which could impact the yen’s continued appreciation.

Some institutions are more optimistic about the yen’s prospects, believing that Japan’s rate hike in April is justified and expecting the yen to break through the 150 mark.

Key factors shaping the yen’s outlook

Based on various perspectives, the future of the yen’s appreciation depends on several key variables: whether the BOJ’s rate hike schedule proceeds as planned, whether the government continues to intervene in the forex market, how the dollar’s trend evolves, and developments in the global economy.

The 150 and 160 levels have become focal points for market observation. Whether the yen can break through 150 or face resistance near 160 will directly test market expectations for Japan’s economic outlook. Supported by policy measures, rate hike expectations, and political stability, the short-term momentum for yen appreciation remains, but the long-term trend will depend on policy implementation and global environment changes.