The Bank of Japan (BoJ) board discussed the monetary policy outlook at their meeting in September. They noted uncertainty around trade policies and their effects on the global economy. The members agreed to monitor how these issues affect both local and international economic conditions and prices. Some members believed the BoJ should use monetary policy to support the economy, especially with potential US tariffs on the horizon. Some board members felt that the possibility of raising rates was becoming clearer, but they emphasized caution to avoid disrupting markets. One member suggested that it could be a good time to start raising rates but expressed concern about the unclear situation regarding the US economic slowdown. There was also a focus on tracking wage trends to help shape future policies. The board discussed the advantages and disadvantages of waiting to raise rates, considering Japan’s long-standing situation with deflation. The current easy monetary conditions were seen as suitable since inflation expectations remained low. It was noted that the effects of US tariffs were less severe than anticipated and unlikely to destabilize Japan’s economy. Following the meeting, the USD/JPY dropped by 0.43% to 153.53. The minutes from the BoJ’s September meeting revealed differing opinions among members, but the overall feeling leaned toward another rate hike. While some members recommended caution due to uncertainty in global trade, others felt the cost of waiting was growing. This internal debate suggests that future decisions will heavily depend on new economic data. As of November 5, 2025, recent data supports increasing policy tightening sooner rather than later. The national core CPI for October 2025 stood at 2.5%, remaining above the 2% target for more than a year. The final results from the 2025 “Shunto” spring wage negotiations showed an average pay rise of 4.5%, giving the Bank confidence that a sustainable wage-price spiral is developing. The minutes also raised concerns about a slowdown in the US economy, which has become clearer as Q3 2025 US GDP growth decreased to just 1.5%. This situation reduces the interest rate gap that has weighed down the yen. The combination of rising domestic inflation and a weaker US outlook creates favorable conditions for yen appreciation. For traders dealing in derivatives, this environment suggests preparing for a stronger yen and increased market volatility in the coming weeks. We believe buying Japanese yen call options or USD/JPY put options is a wise strategy. This allows traders to benefit from a sudden rise in the yen if the BoJ signals a hike in December. There’s also the risk of direct intervention from the Ministry of Finance, especially with USD/JPY trading at 153.53. In 2024, there were multiple interventions when the currency fell below the 155 level, which set a firm ceiling for the pair. This government support makes selling out-of-the-money USD/JPY call options an appealing way to earn premiums while betting that the pair won’t rise significantly. Since the BoJ aims to avoid surprising the markets, they may hint at a rate hike before it’s officially announced, possibly pushing the actual decision to early 2026. Therefore, using options that expire in January or March 2026 could be a better strategy to capture this potential policy shift. This approach allows enough time for the trade to develop while managing the risk of the BoJ maintaining its current stance in December.

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