The Bank of Japan (BoJ) board members recently talked about future monetary policy. They plan to keep raising interest rates if economic and price predictions hold true. The chances of these predictions coming true are now higher, but the policy must ensure steady wage-setting behavior. Board members Tamura and Takata suggested increasing the policy rate from 0.5% to 0.75%. However, this idea was rejected in a 2-7 vote. Some members believe Japan could reach the BoJ’s price target by next spring, expecting wage increases.

Underlying Inflation

Underlying inflation is slowly rising but hasn’t hit the 2% target yet. A weaker yen could cause inflation to overshoot. If the yen falls significantly, import prices could rise, affecting overall inflation. At the time of this report, the USD/JPY was down 0.15% at 156.06. The Bank of Japan started a very loose monetary policy in 2013, which led to a weaker yen, but changed this approach in 2024 as inflation rose. Global factors, like high energy prices and possible wage growth, are increasing inflation and influencing BoJ’s policy changes. These changes have also somewhat reversed the trend of yen depreciation, which was strongly affected by differing policies with other central banks. From the minutes of the late October 2025 meeting, it is clear that the Bank of Japan plans to raise interest rates further. The board generally agrees to take action if economic forecasts, especially related to prices, continue to be positive. This shows a hawkish direction, which should be central in any Yen trading strategy in the weeks ahead.

National Core CPI

This view is now more convincing because Japan’s national core CPI for November 2025 was released at 2.8%, slightly above expectations. This data increases the chances that the BoJ may meet its conditions for another rate hike. We think this could lead to bets on a rate increase sooner rather than later, possibly in the first quarter of 2026. However, the 7-2 vote against a bigger rate hike to 0.75% indicates the board is still cautious. They want to ensure that positive wage growth remains unaffected. This suggests that while they aim for higher rates, the increase may be gradual, leading to uncertainty and volatility around important data releases. Traders should pay close attention to any early news about the spring 2026 “Shunto” wage negotiations. One board member highlighted that reaching the price target depends on these wage increases, making this the most essential forward-looking factor. Any positive rumors or announcements could significantly strengthen the Yen. With this outlook, we see opportunities in options on the USD/JPY pair. Since the pair is currently around 156.00, buying put options with strike prices below 155.00 could be a good strategy to profit from a stronger yen. We witnessed a similar situation before the policy change in March 2024, where expectations of tightening led to a stronger currency. We also expect volatility to rise around the upcoming January 2026 BoJ meeting and the release of December’s inflation data. Traders might consider strategies like straddles to benefit from sharp price movements, no matter which way they go. The key is to be ready for a significant move as the BoJ gets closer to its next policy action. Create your live VT Markets account and start trading now.

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