BOJ governor Ueda stated that policy decisions will not rely solely on new inflation forecasts. He emphasised the importance of reviewing forthcoming data without any preconceptions. The governor mentioned that the effects of tariffs are becoming noticeable, but the timing remains uncertain. He assured that appropriate decisions would be made at each meeting, taking into account risks and the likelihood of underlying inflation trends.
Ueda noted that underlying inflation is gradually rising and is not currently hindered by tariffs. He refrained from making any firm commitments about future policy actions. Despite acknowledging improvements in trade, Ueda remained cautious about discussing interest rate hikes. In the currency market, the USD/JPY fell by 0.4% on the day, trading at 148.87 after testing its 200-day moving average of 149.50.
Anticipated Interest Rate Moves
We see the Bank of Japan signaling its intention to raise interest rates again, even while remaining non-committal. The focus on underlying inflation suggests they are looking past any temporary noise in the data. This means traders should be preparing for a stronger yen in the coming weeks.
This view is supported by recent data showing Japan’s core inflation for July 2025 hitting 2.7%, beating expectations. We also saw the results from the spring “shunto” wage talks, which secured an average pay increase of over 4.5%, the highest in decades. These figures give the BOJ the cover it needs to justify another policy move.
Looking at USD/JPY, we are seeing a similar setup to what happened back in late 2023 when the pair struggled around the 149-150 level before verbal intervention began. The current price action below 149.00 shows the market is already pricing in a more hawkish BOJ. We expect further tests of key support levels as rate hike speculation builds.
Trading Strategies for Yen Appreciation
For derivative traders, this suggests it is time to look at buying JPY call options or USD/JPY put options to position for further yen appreciation. Given the BOJ’s meeting-by-meeting approach, implied volatility is also likely to rise ahead of their next decision in September. Strategies that benefit from this increased volatility could also prove profitable.
We must remember that the BOJ only ended its negative interest rate policy back in March 2024, which was its first hike in 17 years. The current language from the governor indicates we are now in the next phase of policy normalization. This is not a one-off adjustment but a gradual shift that will continue to support the yen.
