Japan’s money supply, which includes currency in circulation and various deposits (M2+CD), grew by 1.8% in November compared to last year, up from 1.6% in October. This growth shows that there is a steady demand for money within the economy. The Bank of Japan is maintaining a supportive monetary policy aimed at fostering economic growth and tackling low inflation. Meanwhile, market activity is fluctuating as investors keep an eye on global economic trends and upcoming decisions from major central banks.

Japan’s Economic Policy

The increase in Japan’s M2 money supply to 1.8% suggests that the Bank of Japan will continue its easy-money approach. This indicates that Japanese interest rates are likely to stay close to zero for a while. Traders should prepare for this ongoing policy into the next year. In contrast, the United States Federal Reserve is keeping its key interest rate around 4.5% to control inflation, which was last reported at 3.1% in November 2025. This big difference in yield is putting pressure on the Japanese Yen. There are opportunities in strategies that profit from a strong dollar against the yen, like buying USD/JPY call options or futures contracts. For stock traders, the Bank of Japan’s relaxed stance is beneficial for Japanese shares. The Nikkei 225 has already increased by over 15% this year, and the continued availability of money suggests this trend may continue. We are looking at buying call options on the Nikkei 225 index to take advantage of further potential gains.

Monitoring Economic Indicators

The Bank of Japan’s caution is evident from recent data. Japan’s GDP growth in Q3 2025 was a modest 0.4%, and core inflation remains just below the 2% target. This weak economic landscape makes it unlikely for any tightening of policy in the near future. The steady policies help make long equity and short yen positions more predictable. However, we need to stay alert for volatility, particularly with the USD/JPY pair testing multi-decade highs around 158 throughout the autumn of 2025. While the underlying reasons are strong, there is a heightened risk of intervention from Japanese authorities to support the yen. This suggests that using options to manage risk could be a wise strategy for these trades. Create your live VT Markets account and start trading now.

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