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    Japanese monetary base decreases year-on-year to -9.8%, down from -8.5%

    by VT Markets
    /
    Jan 6, 2026
    Japan’s monetary base dropped by 9.8% in December compared to last year, which saw a smaller decline of 8.5%. The monetary base includes the money in circulation and the balances banks hold with the Bank of Japan. This decrease continues the trend from previous periods.

    Impact of Central Bank Activities

    Central bank actions can shape these numbers and impact how much money is available in the economy. These changes can also influence banking policies and national economic strategies. The data reflects larger economic shifts, showing changes in both policy and demand. Grasping these changes is crucial for understanding Japan’s overall economic situation. Japan’s monetary base has now declined by 9.8% year-over-year, indicating that the Bank of Japan is tightening its monetary policy. This response comes as core inflation averaged about 2.5% in the last quarter of 2025, showing the BoJ’s intention to normalize its approach. This more aggressive policy may strengthen the Japanese Yen in the near future.

    Investment Strategies and Market Impact

    With this policy change, we see a good chance to invest for Yen appreciation against currencies from central banks that are likely to keep low interest rates. We are considering options strategies that could benefit from a falling USD/JPY rate, like buying puts on this currency pair. This strategy is particularly relevant as recent minutes from the US Federal Reserve suggest a pause in their tightening plans. For Japanese stocks, this tighter monetary policy presents challenges. The combination of reduced market liquidity and a stronger Yen, which decreases profits for Japan’s large exporters, suggests potential weakness in the Nikkei 225. We believe buying puts on Nikkei futures could be a smart way to hedge against or profit from this expected downturn. Looking back at the late 2023 market conditions, we can see how policy differences led to a quick strengthening of the Yen. During that time, the USD/JPY fell sharply as interest rate gaps narrowed. This past experience supports our belief that we may see a similar quick movement now. Create your live VT Markets account and start trading now.

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