Naoki Tamura from the Bank of Japan (BoJ) said the central bank wants to adjust interest rates to a neutral level. When asked about a possible rate increase in the October meeting, he did not provide a comment. Tamura highlighted the importance of observing how U.S. tariffs might affect the Japanese economy, emphasizing that we should avoid making fixed assumptions. The true impact of tariffs remains uncertain and needs careful analysis of data.

Foreign Exchange Market Update

Currently, the USD/JPY is trading at 151.09, with a slight increase of 0.03% today. Tamura stressed the need for stable market movements that align with economic fundamentals. The BoJ adopted a very relaxed monetary policy in 2013 to stimulate the economy and raise inflation. In March 2024, the bank changed this approach by increasing interest rates. This change was driven by a weaker yen and rising global energy costs, which pushed Japanese inflation above the BoJ’s target. Expectations of higher wages in Japan also played a role in this decision. Tamura’s comments indicate that more interest rate hikes are likely, continuing the policy normalization that began in March 2024. This suggests the central bank is firmly moving away from its long-standing accommodative policy.

Implications For Traders And Markets

For traders in the currency markets, these comments support the idea of a stronger Japanese yen. With USD/JPY around 151, traders might consider using JPY call options or selling USD/JPY futures to bet on a decline. Historical trends show that the yen often appreciates quickly following intervention threats and policy changes, as seen in late 2024. The reasoning behind this aggressive policy is based on persistent inflation. Japan’s core CPI has remained above the BoJ’s 2% target, with September 2025 data reporting a 2.6% year-over-year increase. This gives the BoJ a clear reason to raise its policy rate from the current 0.25% to help stabilize the economy. This situation will also impact the Japanese Government Bond (JGB) market. We can expect JGB yields to rise as the market prices in higher policy rates, leading to lower JGB prices. Shorting JGB futures could be a direct strategy to benefit from this expectation before the BoJ’s upcoming meeting later this month. However, uncertainty about the timing of the next rate hike suggests that implied volatility in the options market may rise. This creates an environment where strategies like buying straddles on USD/JPY become appealing for those anticipating significant market movement but uncertain about the direction. Lastly, a stronger yen can negatively affect profits for Japan’s major exporters, impacting Japanese equities. The Nikkei 225 often retraces during times of yen strengthening. Therefore, hedging long stock positions with Nikkei 225 put options or initiating short positions on the index seems like a wise approach. Create your live VT Markets account and start trading now.

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