Prime Minister Kishida unveiled a record-breaking stimulus worth approximately JPY79 trillion. USD/JPY stays in a consolidation phase following the announcement. Economists at MUFG expect the Japanese to curtail its depreciation thanks to attractive real yields.

Larger than expected stimulus program has limited FX action

“The indifference as measured by the lack of reaction in the financial markets couldn’t be starker – the equity, bond and FX markets have all remained relatively muted not just today but this week as the markets received partial details that indicated the government was going big again with stimulus support.”

“Japan households have large pools of savings in part due to doubts about Japan’s overall debt burden and today’s fresh spending package will only reinforce those doubts and encourage continued caution when it comes to spending.”

“Real yields in Japan are relatively attractive. Real yields are clearly not in focus currently but at weaker JPY levels could become a factor to curtail additional JPY depreciation.”