Bank of Japan Governor Kazuo Ueda said policymakers must stay alert as crude oil prices rise and global financial markets remain unstable due to the escalating Middle East conflict. He said Japan\u2019s economic activity and inflation are broadly in line with forecasts.<\/p>\n
Ueda warned that a prolonged conflict could disrupt supply chains and reduce factory output, which could weigh on the economy. He also said higher oil costs could affect underlying inflation in different ways, depending on the output gap and inflation expectations.<\/p>\n
He said the Bank of Japan will track how events affect the economy, prices and financial conditions ahead of its policy meeting on 27\u201328 April. Japan\u2019s preliminary March 2026 money stock data showed M2 rose 2.0% year on year and M3 rose 3.7%, up from 1.7% and 2.0% in February.<\/p>\n
Bank of Japan Governor Ueda’s recent remarks signal a heightened sense of caution for us. With Brent crude recently pushing past $110 a barrel due to Middle East tensions, his focus on oil prices is a clear warning. The risk is that this external shock could force the BoJ to adopt a more hawkish stance than anticipated.<\/p>\n
This situation places significant importance on the upcoming policy meeting at the end of April. Japan’s latest Tokyo Core CPI is already holding firm at 2.8%, well above the central bank’s target, making any new inflationary pressure from energy costs particularly concerning. We must watch for any change in tone that suggests a faster pace of policy normalization is on the table.<\/p>\n
For derivative traders, this introduces a clear risk of a stronger yen in the coming weeks. The USD\/JPY has been hovering near the 160 level, a point of high sensitivity for Japanese officials. A surprisingly hawkish BoJ could trigger a sharp downward move in the currency pair.<\/p>\n
Considering this, we should look at positioning for a stronger yen through options. Buying JPY call options or USD\/JPY put options with expirations after the late April meeting offers a defined-risk way to capitalize on potential volatility. This strategy protects against a sudden policy shift driven by the external shocks Ueda is monitoring.<\/p>\n
The backdrop of rising money supply, with M3 growth accelerating to 3.7% in March, further supports this cautious view. After the historic end to negative interest rates we saw back in 2025, the BoJ is now clearly data-dependent. These new variables increase the odds of a policy surprise that could strengthen the yen.<\/p>\n
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