The Bank of Japan (BoJ) is taking the uncertainty around trade policies into account when making decisions, as stated by board member Junko Nakagawa. Despite the US tariffs, companies are sticking to their capital spending plans. However, demand for non-durable goods is dropping due to rising food prices. Inflation expectations in Japan are slowly rising towards 2%. Japanese corporate profits may take a hit due to tariffs but should bounce back as the global economy improves. Key risks include the effects of US tariffs, shifts in investments driven by AI, and how Chinese exports might impact global markets. Increasing prices and wages in Japan could also affect consumer sentiment and inflation expectations.

Changes In Monetary Policy

The BoJ’s ultra-loose monetary policy, which began in 2013, aimed to boost the economy through Quantitative and Qualitative Easing and negative interest rates. This policy led to a weaker yen, but the situation began to reverse when the BoJ adjusted its policies in 2024. The weaker yen and rising global energy prices pushed Japanese inflation above the BoJ’s 2% target, and increasing wages also played a role in the policy shift. The USD/JPY market reacted positively when the US government reopened, with USD/JPY rising 0.33% to 153.95. This good news overshadowed the BoJ’s comments. The latest statements show that the Bank of Japan is in a wait-and-see mode due to uncertainties like US trade policies. This suggests they are not eager to raise interest rates again after the significant policy change in March 2024. For traders, this indicates that the yen is unlikely to strengthen much based on domestic policy anytime soon. With the USD/JPY exchange rate at 153.95, it’s clear that the market is focusing more on US economic news than on the BoJ’s caution. We saw a similar pattern in 2022 and 2023, where the significant interest rate difference between the US and Japan pushed the pair to record highs. It looks like this trend is returning as the main driver for the currency pair.

Market Strategies

Recent data supports this perspective. Japan’s latest national core inflation for October 2025 was 2.1%, a slight dip from earlier in the year. Meanwhile, the latest US jobs report exceeded expectations, and core inflation in the US is above 3.0%. This suggests that the Federal Reserve will keep interest rates higher for a longer period, making dollars more appealing than yen. For derivative traders, this market environment favors strategies that expect the USD/JPY rate to remain stable or rise in the coming weeks. Purchasing call options on the pair could be a smart way to benefit from possible gains while limiting downside risk. The uncertainty highlighted by the BoJ also suggests that volatility might increase, making options that profit from sharp price movements valuable. It’s important to stay alert to the mentioned risks, especially a slowdown in the US economy or negative impacts from China’s trading actions. A sudden change in US economic data could quickly strengthen the yen, causing these positions to lose value. Therefore, close monitoring of global economic indicators is crucial. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now