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    Japan’s finance minister Kato acknowledges rising interest rates and plans to adjust debt policies accordingly

    by VT Markets
    /
    Aug 29, 2025
    Japan’s Finance Minister Kato has recognized the rise in interest rates. He stressed the need to engage with bond market players to handle debt policies effectively. Kato assured that the government will keep a close eye on the situation. This strategy aims to protect the country’s financial stability as interest rates change.

    Rising Interest Rates

    The finance minister’s acknowledgment of rising interest rates shows a willingness to let the market evolve without drastic intervention. Recently, the 10-year JGB yield reached a 15-year high of 1.25%. As a result, we can expect some upward pressure on bond yields, but it will be managed. This cautious approach brings uncertainty about future policy changes, leading to increased volatility. It may be wise to consider buying straddles or strangles on JGB futures, aiming to profit from a possible big move in yields either way. One important takeaway is that the bond market is unlikely to stay calm for long.

    Implications for the Yen

    These statements also affect the Yen, which has faced pressure for years. With core inflation in Japan steady at 2.3% for July 2025 and rates gradually rising, the Yen’s long-standing decline is at risk. It would be smart to look into buying JPY call options against the dollar, as the interest rate gap favoring the dollar is narrowing for the first time since the Bank of Japan changed its policies in 2024. For the stock market, this gradual increase in rates might pose challenges for the Nikkei 225. Higher borrowing costs could squeeze company profits, a situation we haven’t had to face in Japan for over a decade. We might consider hedging long equity portfolios by purchasing Nikkei put options, especially in interest-sensitive sectors outside of finance. Create your live VT Markets account and start trading now.

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