Naoki Tamura of the Bank of Japan (BoJ) stated that the central bank aims to adjust interest rates closer to a neutral level. When asked about a rate hike proposal for the October meeting, Tamura did not comment.

Tamura noted the need to monitor the impact of US tariffs without any fixed assumptions. The potential effect of tariffs on the Japanese economy remains uncertain, requiring thorough examination of data.

Foreign Exchange Market Update

At the time of reporting, the USD/JPY was trading at 151.09, showing a minor increase of 0.03% on the day. Tamura emphasised the need for stable market movements in alignment with economic fundamentals.

The BoJ adopted an ultra-loose monetary policy in 2013 to boost the economy and inflation. In March 2024, the central bank retracted from this stance, lifting interest rates.

This shift was prompted by a weaker Yen and rising global energy prices, pushing Japanese inflation beyond the BoJ’s target. Increased salary prospects in Japan also contributed to this decision.

Bank of Japan board member Naoki Tamura’s comments signal that further interest rate hikes are likely on the way. We see this as a continuation of the policy normalization that began back in March 2024. This stance suggests the central bank is aiming to move away from its long-held accommodative policy more decisively.

Implications For Traders And Markets

For traders focused on currency markets, these remarks strengthen the case for a stronger Japanese Yen. With USD/JPY currently trading around 151, we should consider positioning for a move lower through instruments like JPY call options or by selling USD/JPY futures. This view is supported by historical patterns, such as the yen’s rapid appreciation following intervention threats and policy shifts we observed in late 2024.

The justification for this hawkish policy is rooted in persistent inflation. Japan’s core CPI has stayed above the BoJ’s 2% target, with the latest data for September 2025 showing a 2.6% year-over-year increase. This gives the BoJ a clear mandate to continue raising its policy rate from the current 0.25% level to cool the economy.

This outlook also has direct implications for the Japanese Government Bond (JGB) market. We should anticipate that JGB yields will rise as the market prices in higher policy rates, which in turn means JGB prices will fall. Shorting JGB futures could be a direct way to trade on this expectation ahead of the BoJ’s meeting later this month.

The uncertainty around the exact timing of the next hike, however, suggests that implied volatility in the options market will likely increase. This environment makes strategies like buying straddles on USD/JPY attractive for those who expect a significant market move but are unsure of the ultimate direction.

Finally, we need to consider the impact on Japanese equities, as a stronger yen typically hurts profits for the country’s major exporters. The Nikkei 225 has historically pulled back during periods of yen strengthening. Therefore, hedging long stock positions with Nikkei 225 put options or initiating short positions on the index appears to be a sensible strategy.

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