Insights 
VT 
BOJ deputy governor Ryozo Himino stated the importance of being cautious about the outlook and risks when considering the next rate hike. He noted the difficulty in pinpointing the level of underlying inflation.
It is not sufficient to focus solely on whether underlying inflation can achieve the 2% target. Decisions must also take into account potential upsides and downsides to the baseline economic scenario.
Recent Remarks And Economic Figures
Himino’s comments are recent, following earlier discussions.
Recent remarks from the Bank of Japan are giving us a clearer signal on the conditions for the next rate hike. We see the key takeaway is that if the feared economic damage from recent global tariffs doesn’t appear in the upcoming data, the path to tighten policy becomes much easier. This provides a direct “if-then” scenario for us to trade against over the next few weeks.
This view is gaining credibility when we look at the latest economic figures. For instance, trade data from last week showed exports holding up better than anticipated despite the US-China trade tensions that escalated earlier in 2025, and August’s core CPI data came in at a stubborn 2.6%. If this pattern continues, the BOJ’s stated reason for delay—waiting to see the impact of tariffs—will weaken considerably.
For derivative traders, this suggests positioning for a stronger yen, as the market is still underpricing the potential for a rate hike before the end of the year. We believe buying JPY call options with November and December expiries offers a low-cost way to profit from a potential policy surprise. This strategy allows us to capitalize on a sudden strengthening of the yen while limiting our downside risk if the BOJ remains on hold.
Interest Rate Strategy
In the interest rate markets, we are looking at paying fixed on short-term yen interest rate swaps. The Overnight Index Swaps (OIS) market is currently pricing in only a 30% chance of a 10-basis-point hike by December, which we feel is too low given the incoming data. This trade will profit as expectations for a hike are forced to adjust higher in the coming weeks.
We must remember how cautiously the BOJ has proceeded since it ended its negative interest rate policy back in March 2024. While the conditions for a hike are building, the Bank has a history of waiting for overwhelming evidence before acting. Therefore, any positions should be structured to withstand potential periods of inaction from the central bank.
