Singapore dollar surges against the Japanese yen to its strongest level in more than a year

[SINGAPORE] The Singapore dollar strengthened to its strongest level against the yen in more than a year on Wednesday (Oct 8) morning.

The latest move marks the rapid weakening of the yen since the beginning of the month.

The yen was 117.78 against the Singapore dollar in the morning, dramatically slumping from around the 114 level at the start of October.

It compares with that of around 115 at the end of last year. The previous height was in July 2024, when it was at around 119 against the Singapore dollar.

The yen’s depreciation comes amid a significant political transition in Japan, with the ruling Liberal Democratic Party (LDP) electing a new leader on Oct 4.

Sanae Takaichi, a conservative protege of former leader Shinzo Abe, is set to become the country’s first female premier.

She has in the past backed aggressive monetary easing and big fiscal spending, echoing Abe, though she seems to have tempered her stance on the campaign trail.

Her election has thus put markets on alert for both continuation of aggressive fiscal spending and loose monetary policies, which have historically contributed to a weaker yen.

Chang Wei Liang, DBS FX and credit strategist, said: “Markets are anticipating a turn towards more expansionary fiscal policy with Takaichi leading the LDP, as well as possible pressure on the Bank of Japan (BOJ) to hold back rate hikes to support growth.”

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He added: “Consequently, market expectations of a BOJ rate hike in October have been sharply scaled back, and Japanese yen selling has increased on a renewal of carry trade outflows,” he added.

Chang noted that the Japanese yen is approaching its 2024 low against the Singapore dollar, with its value recently dipping below S$0.85 for every 100 yen. “We have not changed our Q4 forecast yet at 0.89, but will assess the impact of any policy changes going forward.”

Meanwhile, Saktiandi Supaat, head of FX research at Maybank, said that the yen’s weakness against the Singapore dollar is being driven by a combination of political, monetary and structural factors.

“In Japan, uncertainty following the LDP leadership outcome has reinforced expectations that fiscal expansion will continue, while the Bank of Japan remains on a very gradual tightening path. Real wages remain weak, and with inflation largely cost-push, markets are sceptical that the BOJ will hike aggressively,” he said.

“This widens the yield differential with Singapore, where the Monetary Authority of Singapore (MAS) maintains a modestly appreciating policy stance, underpinned by resilient growth, safe-haven flows and a strong external balance,” he added.

“In short, policy divergence, fiscal worries and eroding safe-haven appeal have left the yen vulnerable, while the Singapore dollar continues to benefit from its AAA rating and regional safe-haven status.”

In addition, traditional safe-haven demand for the yen is eroding, with flows shifting instead to gold, the Swiss franc and the Singapore dollar in Asia, he said. Fiscal concerns have steepened the Japanese government bond curve, adding volatility.

“Looking ahead, Maybank’s forecasts suggest the yen should gradually recover as BOJ tightening resumes in 2026 and Fed easing deepens. Specifically, JPY/SGD is projected at 0.9 in Q4 2025, rising to 0.95 by Q3 2026.”

“This implies SGD/JPY easing from around 111 at end-2025 to about 105 by Q3 2026 and Q4 2026,” Supaat told The Business Times.

He concluded: “In other words, while the near-term outlook remains one of yen weakness and elevated SGD/JPY levels, the medium-term path points to gradual yen recovery and a lower SGD/JPY trajectory as monetary divergence narrows.”

As for OCBC FX and rates strategist Christopher Wong, he said that looking ahead, a pushback against Takaichi’s proposed policies may help to moderate the pace of the yen’s decline.

“But in the meantime, given the uncertainties, the yen may still trade on the back foot, unless yen weakness is countered by official jawboning or BOJ signalling an earlier than expected hike. SGD/JPY may continue to stay elevated around 117 to 118 levels in the interim,” he said.

As for the Singapore dollar, he noted that the MAS monetary policy decision that will be released on Oct 14 may have some impact on the cross.

“We believe it is likely to be a close call between flattening the slope and keeping policy stance on hold,” he said. “MAS maintaining current stance may still see SGD/JPY stay better bid, while MAS flattening the slope may see SGD/JPY moderate lower.”