Insights 
VT 
The Bank of Japan (BoJ) board members discussed the monetary policy outlook during their September meeting. Members recognised high uncertainty regarding trade policy developments and their impact on the global economy. They pledged to closely scrutinise how these factors influence domestic and overseas economic conditions and prices. Some members suggested the BoJ should support the economy through monetary policy due to the potential impact of US tariffs.
Certain members expressed that considerations for a rate hike were gradually becoming apparent, though they advocated for caution to avoid market surprises. One member indicated it might be a good time to resume rate hikes but noted the lack of clarity on the US economic slowdown. There was an emphasis on predicting wage trends to inform future policy directions. The board also discussed weighing the costs and benefits of waiting before raising rates due to Japan’s prolonged deflation.
Current Monetary Conditions
The current easy monetary conditions were deemed appropriate given insufficient inflation expectations. It was mentioned that US tariff effects were smaller than expected and unlikely to destabilise Japan’s economy. The USD/JPY was down by 0.43% at 153.53 following the meeting.
The Bank of Japan’s September meeting minutes show a clear division, but the overall sentiment is leaning towards another rate hike. While some members urge caution due to global trade uncertainty, others feel the cost of waiting is increasing. This internal debate signals that future policy decisions will be highly sensitive to incoming economic data.
From our perspective on November 5, 2025, recent data supports the case for tightening policy sooner rather than later. The national core CPI for October 2025 just came in at 2.5%, remaining stubbornly above the 2% target for over a year. Furthermore, the final results of the 2025 “Shunto” spring wage negotiations confirmed an average pay increase of 4.5%, giving the Bank confidence that a sustainable wage-price spiral is forming.
Concerns Over US Economic Slowdown
The minutes also highlighted concern over a US economic slowdown, which has since become more evident with Q3 2025 US GDP growth slowing to just 1.5%. This reduces the interest rate differential that has punished the yen. This combination of domestic inflation pressure and a softer US outlook is creating a powerful tailwind for yen appreciation.
For derivative traders, this environment suggests positioning for a stronger yen and higher volatility in the coming weeks. We believe buying Japanese yen call options or USD/JPY put options is a prudent strategy. This allows traders to capitalize on a potential sharp move in the yen if the BoJ signals a hike at its December meeting.
The risk of direct intervention from the Ministry of Finance also looms large, especially with USD/JPY trading at 153.53. We saw multiple interventions in 2024 when the currency weakened past the 155 level, creating a hard ceiling for the pair. This government backstop makes selling out-of-the-money USD/JPY call options an attractive way to collect premium while betting that the pair will not rise much further.
Given the BoJ’s desire to avoid surprising markets, a hike might be telegraphed before it is delivered, possibly pushing the actual event to early 2026. Therefore, using options with expiries in January or March 2026 could be a better way to capture the eventual policy shift. This approach gives the trade enough time to play out while managing the risk of the BoJ holding steady one more time in December.
