The expansionary fiscal policy of Takashi Sato intensifies concerns over the depreciation of the yen, with the USD/JPY exchange rate rising back above 153

According to Zhitong Finance APP, on Friday, the yen continued its decline, performing the weakest among the G10 currencies. Earlier, Japan's new Prime Minister Sanae Takaichi stated in parliament that she would implement a "strategic and responsible" expansionary fiscal policy. As a result, as of the time of writing, the USD/JPY exchange rate has risen above 153. The yen has depreciated by about 1.5% this week, more than double the decline of other G10 currencies.

Sanae Takaichi has long been viewed as a supporter of "Abenomics." This has led the market to anticipate that Takaichi may introduce "Abenomics 2.0" to revive the still sluggish economic growth. "Abenomics," implemented by former Prime Minister Shinzo Abe, combined massive fiscal spending with bold monetary easing, aiming to pull Japan out of long-term deflation. According to sources from the Japanese government, the scale of the spending plan that Takaichi is expected to introduce will exceed the 13.9 trillion yen plan set by former Prime Minister Shigeru Ishiba last year.

Additionally, Takaichi previously referred to the idea of the Bank of Japan raising interest rates as "foolish," although she recently stated that she hopes the central bank can pursue "moderate inflation" supported by wage growth. The latest survey shows that due to Takaichi's previous stance leaning towards supporting monetary easing, 90% of Bank of Japan observers expect that the central bank will not raise interest rates when it announces its next policy decision on October 30.

In her first policy speech to parliament as Prime Minister, Takaichi promised to prioritize addressing cost-of-living pressures and strengthening national defense. She also committed to achieving the goal of Japan's defense spending accounting for 2% of GDP ahead of schedule.

Although Takaichi's preference for fiscal stimulus policies has pushed the Japanese stock market to new highs, it has simultaneously put pressure on the yen and Japanese government bonds. However, Japanese long-term government bonds rose slightly on Friday, as Takaichi did not mention a significant increase in bond issuance.

New Finance Minister Satsuki Katayama had previously hinted that if existing resources are insufficient, it may be necessary to issue additional bonds to fund Takaichi's upcoming economic plan. In an interview on Friday, Satsuki Katayama stated, "We typically draw additional budgets from higher-than-expected tax revenues and unused funds from previous budgets. But if that is not enough, we will have to issue more government bonds. If it comes to that, we have no choice."

Markets Live strategist Mark Cranfield stated, "Takaichi hopes to increase government revenue without raising taxes. Forex traders believe this goal is somewhat overly optimistic, hence the yen's weakness. If the U.S. CPI data released later today exceeds expectations, the USD/JPY exchange rate may rise to levels not seen since February."

In addition to fiscal policy, investors are also paying attention to the monetary policy outlook of both the U.S. and Japan, as both central banks will discuss interest rates next week. Investors will closely monitor the U.S. September CPI data released tonight to gauge the possible direction of the Federal Reserve's actions next week and the USD/JPY trend At the same time, the market is also waiting for the Bank of Japan's policy meeting next Thursday, especially the speech by Governor Kazuo Ueda at the press conference following the interest rate decision, to gain clues about the timing of the next possible interest rate hike