Japan’s industrial production in October increased by 1.5%, surpassing the expected growth of 1.4%. This indicates strength in Japan’s manufacturing sector despite global economic challenges. The data was released on Friday and may impact trade and monetary policy in the region. As Japan faces potential economic shifts, upcoming reports will be vital for understanding overall economic conditions.

Industrial Production Trend

The stronger-than-expected 1.5% growth in industrial production in October serves as an early indicator. Preliminary data for November shows continued strength in exports, particularly in the automotive sector. This suggests a robust fourth-quarter performance for Japan’s economy. This sustained industrial output, along with the latest Tokyo CPI data for November holding steady at 2.3%, is putting more pressure on the Bank of Japan. The central bank has maintained its policy rate at -0.1% for years, but recent comments indicate there’s a growing discussion about normalizing policy. We believe the market may still underestimate the chance of a policy shift in the first quarter of 2026. For currency traders, this trend points towards a stronger yen. There is increasing interest in put options on USD/JPY, especially with strike prices near 142 for the February 2026 expiration. This strategy allows traders to prepare for a possible hawkish surprise from the Bank of Japan, similar to the significant yen rally after the unexpected policy change in late 2022. In the equity markets, the Nikkei 225 may continue to rise due to improved predictions for corporate earnings. Buying call options on the index is a straightforward way to benefit from this positive economic trend. A wise approach would also involve selling out-of-the-money calls to protect against the risk of a quickly strengthening yen, which can negatively impact exporter stocks.

Bond Market Outlook

We recommend keeping an eye on the Japanese government bond market as well. The 10-year JGB yield recently rose to 0.98%, a level not seen since 2014. Using options on JGB futures to prepare for a measured rise in yields could be an effective strategy to hedge against an official end to the Bank of Japan’s yield curve control policy. Create your live VT Markets account and start trading now.

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