After a meeting with Japan’s Prime Minister, BoJ Governor Kazuo Ueda talked about the economy and monetary policy. The BoJ will base its monetary policy decisions on a review of various data. The Bank of Japan aims to achieve a stable 2% inflation target by adjusting how much monetary support it provides. While foreign exchange issues were mentioned, no specific details were shared. The preference is for a stable foreign exchange rate that aligns with the economy’s fundamentals.

Market Reaction

After these comments, USD/JPY traded around 155.00, down by 0.12%. The Bank of Japan, as the central bank, focuses on controlling the currency and monetary policy to maintain price stability with a 2% inflation target. Since 2013, the BoJ has followed an ultra-loose monetary policy to boost the economy through Quantitative and Qualitative Easing. In 2016, the policy was further loosened by implementing negative interest rates and controlling the 10-year government bond yield. In March 2024, the BoJ raised interest rates, marking a shift from its prior policy due to a weakening yen and rising global energy prices that pushed Japanese inflation above the 2% target. Anticipated increases in wages in Japan also played a role in this policy change.

BoJ Policy Outlook

Governor Ueda’s comments reinforce the Bank of Japan’s cautious approach, which depends on data for future policy decisions. He indicated that while the move to normalize policy is starting, any changes will be slow and careful. This creates uncertainty, with upcoming data releases under close market scrutiny. With core inflation at 2.4% in October 2025, the BoJ is considering further tightening after earlier small rate hikes. However, wage growth from the 2025 Shunto negotiations was a more moderate 3.8%, causing policymakers to hesitate about the sustainability of rising wages and prices. This mixed data explains the governor’s cautious tone, suggesting the next policy meeting in December will be significant. His mention of foreign exchange signals to the market that with USD/JPY at 155, a level that triggered intervention back in 2024, there is a desire for stable movement aligned with fundamentals. This implies that the government is becoming less tolerant of further yen weakening. For derivatives traders, this atmosphere suggests that implied volatility in yen options may be undervalued. The risk of an unexpected policy shift or sudden intervention is heightened, making long volatility strategies appealing. Buying JPY call options (or USD/JPY put options) provides a way to position for a significant appreciation of the yen with defined risk. The interest rate gap between the US and Japan continues to be a key factor, even as the Federal Reserve keeps rates steady near 4.0% for much of 2025. This makes yen-funded carry trades tempting, but Ueda’s comments raise the risk of a sudden reversal. Thus, using forward contracts or currency swaps to hedge against a sharp yen appreciation is increasingly wise. Create your live VT Markets account and start trading now.

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