Insights 
VT 
The Japan Corporate Service Price Index (YoY) increased from 2.7% to 3% in September. This change indicates a rise in service-related costs over the year.
The Rise Of Inflationary Pressures
The rise in the Corporate Service Price Index to 3% shows persistent inflationary pressures within Japan’s economy. This isn’t a one-off figure; it confirms the trend we’ve seen building for several months, with nationwide core CPI recently reported at 3.1% for September 2025. We believe this data significantly increases the probability of the Bank of Japan acting to tighten policy before the end of the year.
We see this as a clear signal to increase long positions on the yen, particularly against the dollar. Looking back, the BoJ’s first historic rate hike in March 2024 only briefly supported the yen, but current inflation readings are much stronger now. With USD/JPY hovering near the 161 level, options that bet on a move down toward 155 in the coming weeks look attractive.
For Japanese equities, we are now more cautious on the Nikkei 225. The index has performed well this year, recently touching the 41,500 mark, but the prospect of higher borrowing costs makes these valuations look stretched. We would consider buying put options on the Nikkei 225 to hedge against a potential pullback as higher rates begin to weigh on corporate earnings.
The Future Of Japanese Government Bonds
This inflation data also reinforces our view that Japanese government bond yields have more room to climb. The 10-year JGB yield recently broke above 1.20%, a level not seen in over a decade, and this report supports a continued upward trend. Traders should consider short positions in JGB futures, as the Bank of Japan may be forced to let yields rise further to combat inflation.
