Capital Spending Surprise Signals Policy Shift
The surprisingly strong 6.5% capital spending figure suggests Japanese companies are finally investing for growth, moving beyond the cautious stance seen through much of 2025. This data point follows January’s core inflation report which came in at 2.8%, holding above the Bank of Japan’s target for the sixth straight month. We see this combination as significantly increasing the probability of a Bank of Japan policy shift in the coming weeks. For the Nikkei 225, this robust corporate investment outlook is fundamentally bullish. We are looking at buying call options on the index, targeting strikes that reflect a potential break above the highs we saw in late 2025. This strategy is supported by the ongoing “shunto” wage negotiations, where early reports indicate average pay increases are tracking near 3.5%, which should bolster consumer spending. A more hawkish central bank will almost certainly strengthen the yen. The market has been pricing in a very slow normalization since the end of negative rates back in 2024, but this data could accelerate that timeline. Therefore, we are considering selling out-of-the-money call options on USD/JPY, as a break below the 145 level now seems more plausible. The biggest risk is to Japanese government bonds, which have been anchored by the BoJ’s easy money policy for years. Looking back at 2025, we saw how even small hints of policy change caused bond market turmoil and a spike in the 10-year yield to over 1%. We are therefore looking at options that profit from rising yields, such as buying puts on JGB futures, to speculate on a rate hike before the next central bank meeting.Positioning For Yen Strength And Higher Yields
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