The Bank of Japan’s Tankan survey for the fourth quarter shows a positive sentiment index of 28 for the non-manufacturing sector, matching market expectations. This indicates strong confidence among businesses that provide services like retail, transport, and finance. The survey is essential for understanding Japan’s economic situation, as it highlights business confidence and expected performance for the next quarter. The results suggest that the non-manufacturing sector is stable, which is good news for overall economic growth.

Global Market Trends

This finding mirrors global trends, where countries are adapting to shifts in business sentiment and changes in monetary policy. Traders will closely monitor upcoming economic indicators and central bank policies to predict future market movements. The steady Tankan score of 28 implies that implied volatility on Nikkei 225 options may decrease in the near future. We see this as an opportunity to sell options instead of buying them, as we expect fewer large market swings. This environment is favorable for strategies like covered calls or short strangles for those with a clear market outlook. This sentiment is supported by recent data, such as the November core CPI, which remained at 2.2%, slightly above the Bank of Japan’s goal. Since the market has already adjusted to the BoJ’s cautious stance from its last meeting, we don’t expect the Tankan report to cause significant changes. Therefore, we believe the Nikkei 225, currently around the 42,500 mark, will continue its slow upward trend.

Currency Traders Outlook

For currency traders, this stability suggests a steady USD/JPY exchange rate. Compared to the increased volatility during the early policy normalization in 2024, the current environment feels much calmer. We expect the pair to stay within its current range, making it a good choice for range-trading strategies. We advise traders to prepare for this period of stability while keeping an eye on the calendar. The next significant event could be the Bank of Japan’s policy meeting in late January 2026. Any low-volatility positions should be set to expire before that meeting to avoid unexpected policy changes. Create your live VT Markets account and start trading now.

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