Bigger Fiscal Stimulus Concerns in Japan Weigh on Yen as Intervention Risk Rises, Says MUFG

06:46 AM EST, 11/18/2025 (MT Newswires) -- The yen (JPY) has continued to weaken at the start of this week, resulting in USD/JPY hitting a fresh high overnight Monday of 155.38, said MUFG.

It follows the release over the weekend of the latest gross domestic product report from Japan, confirming the economy contracted in Q3, wrote the bank in a note to clients. While the contraction in GDP driven by weakness in residential investment and net trade is expected to prove temporary, it has encouraged market expectations for looser fiscal and monetary policies to support growth under the new Prime Minister Sanae Takaichi.

Yen weakness has coincided with a sell-off at the long-end of the Japanese government bond (JGB) market, indicating that building fiscal concerns are contributing to a weaker yen, stated MUFG. The 30-year JGB yield has moved back within touching of the high from Oct. 7 at 3.35% just after Takaichi won the LDP leadership election held on Oct. 4.

The JGB market sell-off was encouraged overnight Monday by comments from Finance Minister Satsuki Katayama, who stated that while she couldn't comment in detail at this stage, the upcoming fiscal stimulus package has become "somewhat larger so far." It has already been speculated that the size of the supplementary budget will exceed last year's total of 13.9 trillion yen and the local media reported over the weekend it could total around 17 trillion yen.

However, Bloomberg has reported as well overnight Monday that a group of LDP Lawmakers has urged Prime Minister Takaichi to craft a much larger budget. The Responsible and Expansionary Fiscal Policy Caucus has called for an extra budget totaling about 25 trillion yen. The report has added to fiscal concerns and weighed on the yen, added the bank.

One factor that has helped to dampen upside for USD/JPY overnight is uncertainty over potential support for the yen from intervention as the pair moves closer to levels when Japan last intervened in July 2024, according to MUFG.

Finance Minister Katayama stepped up verbal intervention overnight, stating she is "deeply concerned about recent currency moves" and is watching "FX moves with a high sense of urgency." She reiterated that it is vital that "FX moves stably, reflecting fundamentals" but is currently seeing "rapid, one-sided moves in the FX market."

It was a view shared by Bank of Japan Governor Kazuo Ueda after he met with PM Takaichi, when he stated it was "desirable for FX to move stably, reflecting fundamentals." Governor Ueda noted he discussed foreign exchange with PM Takaichi and will cooperate with the government in watching currency moves and monitoring the impact.

At the same time, Governor Ueda noted that he discussed domestic and international economies and monetary policy with the prime minister. He stated that PM Takaichi didn't have a specific request, helping to ease concerns that she would put pressure on the BoJ to slow the pace of monetary easing. Governor Ueda stuck to his view that the BoJ will make appropriate judgments on monetary policy based on the data as he told PM Takaichi that the central bank is in the process of gradual adjustment of easing.

The comments have helped to provide some temporary relief for the yen, but aren't sufficient to reverse the weakening trend, noted MUFG.

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