**BOJ Governor’s Remarks** The BOJ Governor says they are not behind on rate adjustments. The policy rate is low at 0.50%, and while inflation is rising, it has not reached the 2% target consistently. Ueda didn’t confirm if the BOJ will raise interest rates, but he mentioned positive news from a trade deal between the US and Japan. This has led the central bank to rethink its pause on interest rate hikes. As of July 31, 2025, the Bank of Japan is showing a slight but important shift. The economic outlook is improving thanks to the new trade deal, which makes rate hikes more likely. This could lead to a stronger yen in the coming weeks. Recent data backs this up: Japan’s core inflation for June 2025 reached 1.8%, the highest this year but still below the 2% target. The market is starting to believe the BOJ’s cautious approach might be transitioning to a more aggressive stance. This suggests that the trend of a weakening yen might soon pause. **Strategy for Derivative Traders** For those trading derivatives, it’s time to think about buying put options on the USD/JPY currency pair. With the pair around 154.50, buying puts with a strike price below 152.00 could be wise over the next few weeks. Implied volatility is relatively low, making it a good entry point before the market fully adjusts to a rate hike. We’ve seen the BOJ take a careful approach before, especially during the slow move away from negative interest rates in 2024. They often signal changes well in advance, indicating we might be in the early stages of a policy shift. This could make longer-dated options more valuable than betting on quick moves. The possibility of a stronger yen also impacts Japanese stocks. A rising yen can be tough for Japan’s major exporters, which may put pressure on the Nikkei 225 index, currently near 41,000. Therefore, it may be wise to buy protective puts on Nikkei futures to guard against a downturn caused by currency changes. In the rates market, the BOJ’s shift means that traders are now factoring in the chance of a rate hike within the next six months. This makes shorting Japanese Government Bond (JGB) futures a viable strategy. As expectations for a rate hike grow, bond prices are likely to drop. However, we must stay alert to the BOJ’s wait-and-see approach regarding tariffs and their impact on actual data. Any trade or inflation reports that fall short could reverse this bullish sentiment quickly. Thus, any bearish positions in USD/JPY or short JGB should be managed with clear risk strategies. Create your live VT Markets account and start trading now.

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