The Japanese yen weakened in Asian trading on Monday at the start of the week, resuming losses against the US dollar after a brief rebound on Friday. The currency was once again nearing its eight-month low, pressured by expectations of expansive fiscal stimulus under Prime Minister Sanae Takaichi.

Japans new prime minister is reportedly preparing a massive stimulus package aimed at supporting the worlds fourth-largest economy a move that could further delay the Bank of Japans plans to normalize monetary policy or raise interest rates anytime soon.

Price Overview

USD/JPY rose 0.2% to 154.25 yen from an opening of 153.95 yen, after hitting a session low of 153.94 yen.

The yen had gained 0.1% against the dollar on Friday, ending a three-day losing streak as it rebounded slightly from an eight-month low of 154.45.

Aside from technical buying at lower levels, the yen found some support after stronger-than-expected inflation data in Tokyo revived speculation of a potential rate hike in December.

Overall, the yen fell 4.2% against the dollar in October its second consecutive monthly loss following the election of Sanae Takaichi as Japans first female prime minister.

New Stimulus Package

According to government sources cited by Reuters, Prime Minister Takaichi is preparing an economic stimulus package likely to exceed 13.9 trillion yen ($92 billion) to help households cope with rising prices and inflation. The final size of the package is still being discussed, and an announcement is expected in early November.

Interest Rate Outlook

Although Bank of Japan Governor Kazuo Ueda sent his strongest signal yet last week that a rate hike could come in December, markets remain skeptical of the central banks gradual approach.

The probability of a 25-basis-point rate hike in December is holding around 50%.

Investors are awaiting further data on inflation, unemployment, and wage growth to reassess those odds.

Yen Forecast

Rodrigo Catril, senior FX strategist at National Australia Bank, said: If we start moving toward the 155 level, we can expect stronger verbal intervention from Japanese authorities and possibly even a higher risk of direct market action.

He added: In reality, this situation underscores one thing the Bank of Japan cannot afford to wait much longer.