The Bank of Japan has released its Summary of Opinions from the October monetary policy meeting. Members talked about the importance of wage trends and how they might adjust future policies based on the economic and price outlook. One member mentioned that there is no hurry to raise interest rates. However, if expectations align, it could support the normalization of policy. While inflation risks suggest a possible rate hike, there was agreement to proceed cautiously due to uncertainties such as US tariffs.

Policy Adjustments Expected

Members expect that an environment conducive to policy adjustments will arise, provided there are no negative signals from the global economy. One member suggested a rate hike as a step towards normalizing policy, indicating a brighter outlook for Japan’s economy since July. Despite ongoing tariff threats, their expected impact now seems smaller than previously believed. The Bank of Japan is looking to improve its communication, focusing on changes in headline inflation. Back in 2013, the BoJ implemented an ultra-loose policy to combat low inflation, using Quantitative and Qualitative Easing. This strategy led to a weaker Yen, especially with differing policies from global central banks. In March 2024, the BoJ started to shift away from its ultra-loose stance due to rising inflation, partly driven by energy prices and expected wage increases. This change helped reverse some of the Yen’s depreciation.

Interest Rate Hike Concerns

The October meeting summary shows that the Bank of Japan is preparing for another interest rate hike, with sustained wage growth being a key condition. With inflation expectations now around 2%, the discussion has moved from if they will raise rates to when. This indicates increased market volatility, making it a good time to consider options strategies on the Yen that could benefit from future price fluctuations. Recent data supports this hawkish perspective and should be factored into our models. Japan’s core CPI for October 2025 stood at 2.5%, staying above the BoJ’s target for the 19th consecutive month. Additionally, preliminary reports on winter bonuses from major companies show an average increase of over 3%, suggesting that the positive wage trends seen during the 2024 and 2025 “shunto” negotiations may continue. Concerns about the global economy and US tariffs, which once significantly dampened sentiment, seem to be easing. While the 15% US tariff is maintained, the US administration’s recent shift toward domestic tax cuts has reduced fears of escalating trade conflicts. This positive change clears one of the last major hurdles for the BoJ to normalize its policy. Currently, the USD/JPY exchange rate around 153.83 shows that the market hasn’t fully factored in a rate hike for the December or January meetings. This creates an opportunity for a stronger Yen, as the risk leans towards a sooner-than-expected move. We should closely monitor any guidance that indicates a timeline. We also need to pay attention to the consequences of years of loose policy, especially in the real estate sector. Data from the Japan Real Estate Institute for Q3 2025 revealed that commercial land prices in major cities rose by 4% year-over-year. This increase results from persistently negative real interest rates. The growing concern over asset bubbles adds pressure on the BoJ to take action sooner to prevent economic distortions. Create your live VT Markets account and start trading now.

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