The Yen’s devaluation phase against the dollar got extended earlier today, after details for a stimulus package made rounds in the markets and made investors weary about the Japan’s fiscal health onwards.

Under the helm of its new Prime Minister Sanae Takaichi, an ultra-dove in the eyes of the market, the Japanese government announced its expansionary fiscal ambitions that aim to make life of average households easier by providing tax breaks, subsidies for electricity bills but also payouts families (child allowances). The scale, alongside the method of carrying out their easing fiscal measures however, is what markets scrutinize.

The massive 17.7 trillion Yen spending plan ($112bn), one of Japan’s largest in recent years, will be funded by an expected rise in overall tax revenue, as well as an additional issuance of government bonds said sources familiar with the matter. The sheer scale of the package is what prompted traders to ramp up their short positions against the Asian currency, projecting that the additional stimulus boost to support an ailing Japanese economy, would be unsustainable and most likely detrimental in the long term.

Devaluation of the currency could give rise to trade activity, as a weaker Yen will be more “affordable” for foreign buyers, but at the same time, it opens the door for speculators, that prey on the weakness and will most likely repeat the 2021 carry trade scenario. At the same time, the government and more specifically the finance ministry will be on high alert for these aforementioned expected attacks by scavengers primarily with FX reserve purchases, but those cannot happen everyday.

Placing more pressure on the Yen was the recent strengthening of the greenback, stemming from the contents of the latest Fed meeting minutes, which showcased the lack of unanimity of policymakers in favour for a rate reduction at the December decision.

Technical Analysis

USDJPY Chart Bearish momentum against the Yen strengthens significantly after PM Takaichi unveils stimulus plans

Resistance: 158.50 (R1), 161.70 (R2), 167.74 (R3)
Support: 155.50 (S1), 153.00 (S2), 150.30 (S3)