The Bank of Japan (BoJ) board members discussed future monetary policy, indicating they will continue to raise rates if economic and price forecasts are realised. The likelihood of these forecasts materialising has increased, but the policy must remain to confirm stable wage-setting behaviour.
Board members Tamura and Takata recommended an increase in the policy rate to 0.75% from 0.5%, which was rejected by a 2-7 vote. Some members expect Japan to meet the BoJ’s price target by next spring with anticipated wage gains.
Underlying Inflation
Underlying inflation is gradually rising but has not reached the 2% mark, and yen depreciation could lead to inflation overshoots. A strong yen drop could heighten import prices, impacting inflation.
As at the time of the report, the USD/JPY was down by 0.15% at 156.06. The Bank of Japan began an ultra-loose monetary policy in 2013, inducing yen depreciation, and shifted this stance in 2024 amid rising inflation.
Global factors like high energy prices and potential wage growth are fuelling inflation, contributing to the BoJ’s policy adjustments. The changes have reversed some yen depreciation trends, previously accentuated by policy differences with other central banks.
Based on the minutes from the late October 2025 meeting, we see a clear signal that the Bank of Japan intends to raise interest rates further. The board’s consensus is to act if economic forecasts, especially on prices, continue to materialize. This reinforces a hawkish bias that should be central to any Yen-related trading strategy in the coming weeks.
National Core CPI
This stance is now more credible given that Japan’s national core CPI for November 2025 was just released, coming in at 2.8%, slightly above expectations. This latest data point heightens the likelihood that the BoJ’s conditions for another rate hike are being met. We believe this will increase bets on a rate move sooner rather than later, possibly in the first quarter of 2026.
Despite the hawkish tone, the 7-2 vote against a more aggressive rate hike to 0.75% shows the board remains cautious. They are still waiting to confirm that positive wage growth won’t be disrupted. This suggests that while the direction is for higher rates, the pace may be slow, creating uncertainty and volatility around key data releases.
Traders should pay extremely close attention to any preliminary news regarding the spring 2026 “Shunto” wage negotiations. One member explicitly linked achieving the price target to these wage gains, making this the most critical forward-looking catalyst. Any positive rumors or announcements will likely cause significant strengthening of the Yen.
Given this outlook, we see opportunities in options on the USD/JPY pair. With the pair currently trading near 156.00, purchasing put options with strike prices below 155.00 could be a viable strategy to profit from a strengthening yen. We saw a similar dynamic leading up to the policy shift in March 2024, where anticipation of tightening eventually drove the currency stronger.
Volatility is also expected to rise around the upcoming January 2026 BoJ meeting and the release of December’s inflation data. Traders could consider strategies like straddles to capitalize on sharp price movements, regardless of the direction. The key is to be positioned for a decisive move as the BoJ gets closer to its next policy action.
