The BoJ plans to keep its benchmark rate steady while awaiting clarity on trade talks and fiscal policy.
by VT Markets
/
Jul 22, 2025
The Bank of Japan is expected to keep its benchmark interest rate the same. This choice comes from the idea that the recent election won’t change their stance on rates. The Bank of Japan (BoJ) wants to watch trade discussions closely before thinking about raising rates.
The BoJ has indicated that there could be upward price risks if significant government spending occurs. This goes along with what they have said before. They plan to wait for clearer information about tariffs and ongoing trade talks before making any changes to interest rates.
Interest Rate Gap
We think the central bank’s decision to stay put will keep the big interest rate gap between Japan and the United States. The U.S. Federal Reserve’s rate is now between 5.25% and 5.50%, while Japan’s rate is close to zero. This situation continues to support carry trades, which earn profit from holding dollars that yield more than yen.
A stable policy environment should keep short-term currency fluctuations low, making options trading appealing. We see a chance to sell out-of-the-money yen call options, which would benefit from a stable or declining yen. Historically, when central banks have been transparent, option premiums have tended to decline profitably.
This difference in policies has led the USD/JPY currency pair to reach multi-decade highs. Recently, it surpassed the 160 mark for the first time since 1990, showing strong upward momentum. Traders might consider taking long positions in USD/JPY futures or bullish option spreads to take advantage of this trend.
Market Watchfulness
However, we need to stay cautious about the upward price risks mentioned earlier. Japan’s core inflation recently reached 2.2%, remaining above the central bank’s 2% target for over two years. If prices rise unexpectedly, it could lead to a sudden policy shift, reversing the yen’s current weakness.
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by VT Markets
Jul 22, 2025
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