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    In November, the year-on-year decrease in the Japanese monetary base went from -7.8% to -8.5%

    by VT Markets
    /
    Dec 2, 2025
    Japan’s monetary base fell from -7.8% to -8.5% compared to last year, as of November. This change shows shifts in the country’s financial situation. The monetary base includes the currency that the central bank supplies. This means it covers coins, banknotes, and the deposits commercial banks hold at the central bank.

    Impact On Lending And Economic Activity

    A drop in the monetary base can affect lending and the economy as a whole. We closely watch this number to gain insights into where the economy might be heading. Understanding Japan’s monetary base is essential for analyzing its financial landscape. Keeping an eye on these changes can help inform future economic decisions. The Bank of Japan is speeding up its balance sheet reduction. The year-over-year monetary base has decreased even more, now at -8.5%. This indicates a stronger move away from the very loose policies that have shaped Japan’s economy for over ten years.

    Market Implications

    This tightening suggests that the yen could strengthen soon. We expect pressure on currency pairs like USD/JPY, which reached high levels above 155 in 2024. Traders might consider put options on USD/JPY or call options on the yen to prepare for this shift. For stock markets, the decreasing liquidity could be a challenge for the Nikkei 225. After hitting record highs above 40,000 in early 2024, the index is likely to see a correction, especially since recent data indicates a 2% downward revision in corporate earnings forecasts for Q1 2026. Traders should think about protective put options or short futures on the index in the coming weeks. We also expect Japanese Government Bond yields to rise. Since ending Yield Curve Control in 2024, the yield on 10-year JGBs has already surpassed 1.2%, a level we haven’t seen in over ten years. Traders can prepare for this trend by using interest rate swaps or shorting JGB futures. Create your live VT Markets account and start trading now.

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