BOJ policymaker Naoki Tamura has observed that inflation is rising faster than he expected since May. While there is some clarity on US tariffs, predicting the economic outlook remains difficult. Tamura suggests that the Bank of Japan might need to act decisively if price risks continue to grow. The BOJ has been somewhat passive during the US tariffs dispute, but some central bank members seem eager to start discussions again. Tamura’s comments indicate a change at the Bank of Japan. Instead of caution, there is now a hint that they may act more quickly. The way inflation is talked about has shifted—it’s no longer seen as a distant issue, but as something urgent, happening faster than expected. This shift signals a need for preparation. This change implies that upward pressure on consumer prices is seen less as temporary. It suggests that tightening monetary policy could be on the table. Tamura’s remarks hint at an ongoing internal discussion that is heating up but not completely settled. Even with some uncertainty lifted regarding American tariffs, domestic pricing pressures are likely to take center stage. For us, this positioning is crucial when assessing interest rate risks. If certain policymakers are ready to adjust policy, especially if inflation rises again even slightly, fixed income instruments could face challenges. Any changes would need to be carefully measured and responses prompt. Expectations should also adjust regarding the risk-reward ratio in yen-related carry trades. A decisive move from the BOJ—whether verbal or otherwise—could trigger currency shifts that unwind long-held positions. Therefore, we must monitor leverage more closely. Current exposure may be manageable, but that could change if the central bank stops being passive. In this situation, upcoming data releases like the next CPI print or consumer confidence readings are not just predictions but important signals. A faster-than-expected CPI could ignite significant changes. For those trading related futures or options, it’s important to pay close attention to forward rate agreements. Now, it’s more about timing than direction. Pricing risk emphasizes the order of events over the next quarter. As the gap between the BOJ’s decisions and market expectations narrows, we can expect rising volatility. Although bond volatility indexes are currently low, they have shifted in the past during quiet weeks. Keep an eye on updates related to balance sheet discussions in the board minutes. Signs of asset trimming alongside talks of rate changes would mean reassessing liquidity assumptions. Consequently, risk premiums tied to Japanese government bonds could undergo re-pricing that spreads outward. Additionally, take note of what hasn’t been said in the past month. Fewer communications often signal an upcoming need for clarity, whether in action or stance. It’s prudent to prepare for both possibilities. Initially, keep spreads tight. Be cautious with cross-border positioning—the situation may be changing.

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