Federal Reserve Board Governor Christopher Waller is scheduled to give a speech about the economic outlook. He will speak to the Money Marketeers of New York University at 2230 GMT / 1830 US Eastern time. As a voting member of the Federal Open Market Committee, Waller has mentioned that he supports a rate cut in July. The Committee will meet on July 29-30. Also on the agenda is the Japanese Consumer Price Index (CPI) data for June. Tokyo’s June 2025 headline CPI increased by 3.1% compared to last year, falling short of the expected 3.3% rise. Analysts expect similar trends in the national data. Despite this, the Bank of Japan may consider raising its inflation forecast. Any updates on these forecasts could come during the Bank’s meeting on July 30-31.

Central Bank Policy Divergence

The next few weeks offer significant opportunities due to differences in central bank policies. Derivative traders should pay attention to the late July meetings of both the Federal Reserve and the Bank of Japan. Mr. Waller’s speech is expected to influence interest rate expectations. Given the uncertainty around his remarks, buying near-term volatility on U.S. interest rate futures might be a wise move. Historically, the VIX index, which measures fear in the equity market, typically rises in the week before FOMC announcements. We expect a similar increase in volatility this time, positioning for a sharp move in bond or equity markets after the decision on July 30th. In Japan, the situation is intriguing due to mixed signals. While inflation data may show a slowdown, the central bank is reportedly considering a more aggressive approach. This could lead to an unexpected reaction in the yen. We are preparing for a significant move in the USD/JPY currency pair following the July 31st policy meeting. In December 2022, the BoJ made a surprising policy change, which led to the yen strengthening nearly 4% against the dollar in one day. Buying options on this currency pair allows us to profit from such strong moves, regardless of the direction.

Heightened Global Market Volatility

The closeness of these two major central bank meetings at the end of July indicates a period of increased global market volatility. The potential for a rate cut by the Fed and a hike by the BoJ creates significant swings for all asset classes. Traders should be ready for sharp and correlated movements in equities, bonds, and currencies. This situation is reminiscent of the 2022-2023 period when aggressive U.S. rate hikes against a passive Japanese policy caused the yen to weaken significantly, falling from 115 to over 150 per dollar. This historical example shows how differences in central bank policies can create prolonged trends. We are getting ready for a new, powerful trend to emerge from these upcoming meetings. Create your live VT Markets account and start trading now.

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