BOJ policymaker Junko Nakagawa said that decisions on policy will be made at each meeting based on solid data. This includes important insights from the BOJ Tankan survey, which helps gauge sentiment and capital spending. Nakagawa mentioned that the risk of falling behind on adjustments to policy is currently low. He stated that long-term interest rates should be determined by market forces.

Uncertainty Around Trade Policies

He also pointed out that uncertainty regarding trade policies has eased somewhat since April. These comments strengthen our view that the Bank of Japan is not rushing to raise interest rates sharply. This careful, data-driven approach makes the yen carry trade appealing, where traders borrow yen at low rates to invest in currencies that yield higher returns. The USD/JPY exchange rate, which has remained above 155 this week, reflects this difference in policy. The specific focus on the Tankan survey highlights the early October release as a key event for Japanese markets. Until then, we can expect low volatility in yen currency pairs, creating chances for selling short-term options. A similar situation occurred after the disappointing July 2025 Tankan survey, which lowered expectations for rate hikes. The idea that long-term rates should be set by the market suggests the BOJ will allow the yield curve to steepen. We’ve already seen the 10-year Japanese government bond yield rise to 1.15%, a notable increase from the sub-1% levels in early 2025. This trend supports derivative positions that benefit from rising long-term interest rates.

Patient Approach Supported by Inflation Figures

This careful approach is backed by the latest inflation data, which shows Japan’s core CPI for July 2025 dropped to 1.9%, down from the 2.5% highs seen in the first quarter. With inflation now below the 2% target, the central bank has little reason to act prematurely. This contrasts with the US, where inflation remains persistent, strengthening the dollar against the yen. While the overall trend seems clear, we must remain cautious of intervention risks from the Ministry of Finance. Looking back at the sharp market fluctuations during interventions in 2022 and 2024, any rapid rise of USD/JPY toward 160 could prompt sudden yen-buying actions. Traders should use options to manage their risk against such unexpected shifts in policy. Create your live VT Markets account and start trading now.

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