Bank of Japan Governor Ueda addressed parliament on the ongoing high uncertainties surrounding rice and other food prices. He expressed that these prices are expected to stabilise eventually, but the impact on underlying inflation is a concern.

The Bank of Japan remains attentive to the situation, monitoring global economic uncertainties closely. In earlier remarks, Ueda indicated that the bank would raise rates if certain economic and price projections materialise.

Steps Towards Normalisation

Former BOJ Governor Kuroda supports Ueda’s steps towards normalisation. This outlines the path for potential changes in the Bank’s monetary policy approach.

In essence, the current policy posture hints at a guarded readiness—there’s a watchful eye on inflation, and any move will depend on definitive shifts in price trends and economic output. Governor Ueda’s testimony sets the tone: while food prices such as rice are expected to level off, their persistence has complicated forecasts of inflation dynamics. The concern isn’t just about high prices in isolation—what matters here is how these ripple across consumer expectations, and whether second-round effects take root more deeply than anticipated.

The suggestion of a possible rate hike isn’t theoretical anymore; it sits squarely in the realm of conditional planning. If projections for economic growth and stable inflation beyond volatile components—like energy and food—actually hold, then we’re likely to see less resistance from policymakers toward policy tightening. What we must understand is that the bar for action has been clearly defined.

Kuroda’s alignment with the current administration’s thinking also adds weight. It sends a message to markets: this is a continuity of thought, not a departure. The institutional thinking is cohesive. That means for us, there’s an expected narrowing of policy variation, and most reactions should fall within a predictable range, given certain assumptions are met.

Market Implications and Strategies

Rates futures and optionality pricing—including strategies positioned on the 10-year JGBs—should reflect this modest directional bias. The challenge now is to place trades in such a way that they’re not predicated on rapid decisions, but rather on accumulating signs that currently hold weight in the Governor’s speeches and in broader economic data. Probability-based models favour gradualism; the emphasis remains on measured, reactive policy, not preemptive.

This isn’t an environment that rewards excessive leverage on binary outcomes. If anything, exposure needs to lean toward scenarios of persistence—the continuation of monitored inflation pressure—but without overstatement. Pay particular attention to wage negotiations and company pricing behaviours. These are the indicators most likely to tilt policymaker expectations from wait-and-see to shift-and-adjust.

Adjust implied volatilities accordingly. Remove tail risk from the front end of the curve unless storage costs or unexpected geopolitical pressures force a recalibration. Monitor expectations embedded in superlong JGB spreads. If guidance continues pointing to a conditional tightening bias, these spreads will likely continue compressing.

In sum, we must shape our positions around confirmation, not anticipation. Forward-looking volatility should remain subdued unless a pattern starts forming in wage inflation data or export volumes. So the task over the coming weeks is not to predict policy actions blindly, but to track the data that policymakers are already stating will be their compass.

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