Federal Reserve Board Governor Christopher Waller is set to deliver a speech on the economic outlook before the Money Marketeers of New York University. This event is scheduled for 2230 GMT/1830 US Eastern time. As a voting member of the Federal Open Market Committee, Waller has previously stated he supports a rate cut in July. The Committee’s meeting is set for July 29-30.
Additionally, Japanese Consumer Price Index (CPI) data for June is on the agenda. Tokyo’s June 2025 headline CPI showed a year-on-year increase of 3.1%, which is less than the expected 3.3%. Analysts anticipate a similar moderation in the national numbers. Despite this moderation, the Bank of Japan is reportedly considering revising its inflation forecast upwards. Any potential revisions to these forecasts may be released during the next Bank of Japan meeting on July 30-31.
Central Bank Policy Divergence
We believe the upcoming weeks present a significant opportunity driven by central bank policy divergence. Derivative traders should focus on the late July meetings of both the Federal Reserve and the Bank of Japan. Mr. Waller’s speech will be a critical near-term catalyst, setting the tone for interest rate expectations.
Given the uncertainty around his comments, we see value in buying near-term volatility on U.S. interest rate futures. Historically, the VIX index, a measure of equity market fear, has seen average daily increases in the week leading up to FOMC policy announcements. We anticipate a similar rise in volatility and would position for a sharp move in bond or equity markets following the July 30th decision.
The situation in Japan is equally compelling due to conflicting signals. While the inflation data may show moderation, the central bank is reportedly considering a more hawkish stance. This creates a classic setup for a mispriced reaction in the yen.
We are positioning for a large move in the USD/JPY currency pair following the policy meeting on July 31st. Looking back at the BoJ’s surprise policy tweak in December 2022, the yen strengthened nearly 4% against the dollar in a single session. Buying options on the currency pair allows for profiting from such a powerful move, regardless of its direction.
Heightened Global Market Volatility
The close proximity of these two major central bank meetings at the end of July suggests a period of heightened global market volatility. Policy divergence between a potentially cutting Fed and a potentially hiking BoJ creates powerful cross-currents for all asset classes. Traders should be prepared for sharp, correlated moves across equities, bonds, and currencies.
This dynamic echoes the 2022-2023 period when aggressive U.S. rate hikes against a passive Japanese policy caused the yen to weaken dramatically from 115 to over 150 per dollar. That historical precedent underscores how central bank divergence can fuel sustained, multi-month trends. We are positioning for the beginning of a new, powerful trend to emerge from these meetings.
