Fiscal Sustainability Concerns Weigh on Japanese Yen Outlook

Rabobank strategists have highlighted that Japan's substantial public debt is a key factor shaping the outlook for the Japanese yen, alongside monetary policy divergence and global risk sentiment.

The bank's analysis suggests that fiscal sustainability concerns could weigh on the currency, even as the Bank of Japan gradually normalizes its ultra-loose monetary policy. Japan's gross government debt exceeds 200% of its GDP, the highest among advanced economies.

This structural burden creates a persistent vulnerability for the yen, as investors demand a risk premium for holding Japanese assets.