Japan’s money supply, measured by M2+CD, rose by 1.7% year-on-year in December. This is a small drop from the last month’s rate of 1.8%. M2+CD includes cash, checking deposits, and savings deposits. It shows how much liquid money is available in the economy.

Money Availability and Economic Impact

The growth rate indicates how much money is available for spending and saving. Changes in M2+CD can influence inflation and economic growth. The slight decrease from the previous month hints at a small shift in the availability of money. Analysts pay close attention to this information, as it can guide economic policy and help maintain financial stability. In December 2025, Japan’s money supply growth slowed to 1.7%, a minor dip from the month before. This suggests that the Bank of Japan (BoJ) is unlikely to tighten its monetary policy anytime soon. The ongoing slow growth in money supply indicates a continued low-inflation environment.

Impact on Currency and Investment Strategies

The slowing money supply indicates that the interest rate gap between the US and Japan will likely remain large, which may weaken the yen. Investors might consider buying USD/JPY call options or going long on futures, aiming for prices above the recent highs of late 2025. Last year, the USD/JPY pair increased by over 12% as the Federal Reserve kept rates steady while the BoJ maintained its supportive stance, a trend that seems likely to continue. A weaker yen benefits Japan’s major exporters, which could lift the Nikkei 225 index. We are looking into out-of-the-money call options on the Nikkei 225 as a budget-friendly way to take advantage of this potential upside. This strategy worked well in the latter half of 2025, when the index rose nearly 8% due to favorable currency conditions. With the BoJ not expected to increase rates, Japanese Government Bond (JGB) yields should stay stable. This makes holding long positions in JGB futures a secure option in the coming weeks, serving as a hedge against any sudden market changes that might temporarily strengthen the yen. The market’s expectation of a steady BoJ has kept implied volatility for currency pairs like USD/JPY relatively low, with recent data from the Cboe Japan Exchange showing it has fallen to multi-month lows. While this indicates a calm market, we should be alert for any changes in the BoJ’s messaging. A hint at a policy shift could create a sudden rise in volatility, making long vega positions a potential hedge, even though it may seem counterproductive. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now