Japanese Yen Weakens on Risk-On Mood and Fiscal Concerns, BoJ Hike Hopes Limit Further Declines

The Japanese Yen remained under pressure during Friday’s Asian session as a buoyant global risk appetite diminished demand for safe-haven assets, while renewed worries over Japan’s worsening fiscal outlook—fueled by Prime Minister Sanae Takaichi’s large-scale spending plans and lackluster growth—further weighed on the currency. Despite these headwinds, growing expectations of a possible Bank of Japan rate hike as soon as the December 18-19 meeting, reinforced by still-elevated corporate goods inflation and Governor Ueda’s hawkish tone, are deterring aggressive yen selling. Meanwhile, the US dollar lingers near a two-month low after the Fed’s dovish 25 bps cut and signals of potential further easing in 2026, creating a clear policy divergence that caps significant upside for USD/JPY and keeps the pair’s recovery from below the 155.00 level in check.

The Japanese stock market has tracked lower in back-to-back sessions, slumping more than 500 points or 1 percent along the way. The Nikkei 225 now sits just beneath the 50,150-point plateau although it may find traction on Friday.