Bank of Japan’s Monetary Policy Outlook

The Bank of Japan (BOJ) is likely to keep interest rates steady while the market considers possible future rate increases. The USD/JPY is showing slight gains, nearing 158.50, ahead of the BOJ’s decision on rates. For currency traders, several brokers are being reviewed, focusing on low spreads, high leverage, and special accounts. There are also guides available to help select the right brokers in different regions and platforms. FXStreet reminds traders that their market insights are for educational use only and highlight the risks involved in trading. They stress the importance of conducting personal research due to the significant risks of investments. New Zealand’s inflation rate surprised many by reaching 3.1% for the last quarter of 2025. This challenges the idea that the Reserve Bank of New Zealand (RBNZ) might ease policy soon. As a result, the market may now expect a higher chance of another rate hike or a “higher for longer” stance from the central bank.

RBNZ’s Potential Monetary Policy Moves

Looking back at the RBNZ’s actions from 2022 to 2023, they were quick to respond to rising inflation. They were among the first major banks to raise rates significantly, setting an example for others. Traders should consider preparing for a similar strong response now, perhaps by using call options on the New Zealand dollar to take advantage of potential gains. The difference between New Zealand’s approach and Australia’s is becoming more noticeable. Australia’s latest inflation data from late 2025 indicates a clear cooling trend, with their monthly CPI dropping to around 3.4%. This divergence in policy—where the RBNZ seems hawkish while the Reserve Bank of Australia is more neutral—supports a long position on NZD/AUD. Historically, the interest rate difference is important for this currency pair, and it appears to be widening in favor of the Kiwi dollar. It’s also essential to note that speculative positions tracked by the CFTC up to early January 2026 showed a significant short position on the Kiwi dollar. This one-sided bet means that the recent inflation surprise could lead to a major short-squeeze, forcing those betting against the currency to cover their positions. This could amplify any initial upward movement in the coming weeks. The positive outlook for the NZD is further bolstered by a weaker US dollar, as the Dollar Index (DXY) recently dipped below 101.50 for the first time since last summer. A weaker dollar benefits commodity currencies like the New Zealand dollar. Thus, strategies such as buying NZD/USD call spreads could be a profitable way to capitalize on both Kiwi strength and a broadly weaker dollar. Create your live VT Markets account and start trading now.

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