Bank of Japan Deputy Governor Shinichi Uchida has raised concerns about the economy. He believes that the risks for growth and inflation are leaning toward the downside due to uncertain global trade. He noted that the central bank might increase interest rates, but only if economic conditions and prices develop as expected. Inflation has been higher than anticipated, mainly because food prices are rising. Uchida said the BoJ will assess any changes without bias, especially in light of shifts in U.S. trade policies. A new trade deal between the U.S. and Japan could reduce some worries, but ongoing tariffs could hurt wage growth in Japan.

Bank of Japan’s Policy Changes

The BoJ ended its ultra-loose policy and raised rates earlier this year. However, it adjusted its growth forecast in May due to rising U.S. tariffs and other global risks. Analysts believe that future rate hikes will depend on steady wage growth from companies and strong domestic demand. Many expect the BoJ to keep rates steady until 2025. The upcoming quarterly outlook will likely discuss trade risks, possibly with a more positive tone than earlier forecasts. The Bank of Japan’s careful approach signals ongoing weakness for the yen, which might create trading opportunities. The large interest rate gap with the United States is likely to keep pressure on the currency. The July policy meeting will be a key moment to watch for any changes in this viewpoint. Uchida’s focus on downside risks suggests that even strong domestic indicators, like the first wage increases over 5% in thirty years, may not be enough for a rate hike anytime soon. His concerns about U.S. trade policy seem to overshadow solid wage growth. This points to a likely continued weakness of the yen against major currencies.

Impact on Japanese Markets

This policy outlook is generally favorable for Japanese stocks, especially for large exporters who benefit from a weaker yen. Historically, a lower yen has often supported rallies in the Nikkei 225 index. We recommend using options strategies to capture potential gains in equities while also protecting against global trade risks. The warning about “extremely high” uncertainty means that volatility could rise, especially with the yen trading close to multi-decade lows of around 160 to the dollar. The chance of sudden government intervention or surprise policy changes is higher at these levels. It is wise to use currency options to guard against a sudden, unexpected shift in the yen’s direction. Uchida’s remarks also suggest that Japanese Government Bond yields will likely stay low in the short term. However, there is tension since Japan’s core inflation has been above the central bank’s 2% target for more than two years. This makes the bond market sensitive to any unexpectedly hawkish comments, which could quickly lead to a sell-off. Create your live VT Markets account and start trading now.

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