Japan’s energy-focused fiscal stimulus is set to lower headline inflation and may delay further BOJ tightening, pushing real rates deeper into negative territory and keeping the Japanese Yen (JPY) soft. With USD/JPY edging toward the 159–160 zone, authorities may be forced to intervene—potentially taking advantage of thin US Thanksgiving liquidity to maximize impact, ING's FX analyst Chris Turner notes.

Yen remains under pressure

"Unlike in the UK, where fiscal tightening raised inflation and proved a double shock to the economy, Japan is employing fiscal stimulus targeted at energy subsidies. This will bring headline inflation down and perhaps keep the Bank of Japan from raising rates. Potentially, this sees real Japanese rates turn even more negative and will keep the yen soft."

"However, we are certainly getting closer to intervention territory in USD/JPY. Should USD/JPY make it anywhere near the 159/160 area next week, we would expect intervention to be seen. It could potentially emerge during the US Thanksgiving Day public holiday, where thin market conditions could see Japanese authorities earning a bigger bang for their intervention buck."