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    JPY strengthens as inflation hints at a potential rate increase, despite two dissenting opinions

    by VT Markets
    /
    Sep 19, 2025
    The Japanese yen rose when two members of the Bank of Japan expressed their disagreement and suggested a rate hike. However, the USD/JPY pair stayed below 147.50, showing a limited reaction to the news. The Bank of Japan decided to keep its main interest rate at 0.5%, which many expected. The dissenting members believed that the current inflation warranted a rate increase.

    Central Bank Policy Overview

    The Bank of Japan is also set to start selling its investments in Exchange-Traded Funds (ETFs) and Japanese Real Estate Investment Trusts (J-REITs). With two dissenting votes calling for a rate hike, the Bank of Japan’s previously unified stance is beginning to weaken. This is an important indicator, as it raises the likelihood of a policy change soon. Market participants must now consider a higher chance of a rate hike at the next meeting. The planned sale of ETFs and J-REITs represents a gradual shift toward tightening monetary policy, which will reduce liquidity. Similar steps have been taken by other central banks, indicating a move towards normalizing policies. Japan’s core Consumer Price Index (CPI) has been above 2.5% for six months, justifying these more aggressive actions. Given this change, we can expect more fluctuations in the yen. Implied volatility increased significantly during the policy changes of 2023, and the 3-month JPY volatility index has already risen by 8% this week. This makes long volatility strategies, like buying straddles or strangles on USD/JPY, an attractive option.

    Market Implications

    The USD/JPY pair seems to be trending downwards. Although dropping below 147.50 is a small move, it could signal a larger downward trend, particularly as we remember the highs above 155 reached in 2024. Traders may want to consider using put options to bet on a stronger yen, aiming for a move toward the 142-144 range in the coming weeks. Create your live VT Markets account and start trading now.

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