Bank of Japan Governor Ueda addressed recent policy decisions and interest rate discussions. He noted that underlying inflation remains below 2% but is nearing this target. The board did not agree with proposals from members Takata and Tamura. Ueda emphasised the importance of assessing data amidst uncertainties from trade policies.
Bank’s Asset Strategy
The Bank plans to continue selling ETFs and J-REITs until their holdings are fully disposed of, without changing the sales pace for monetary policy adjustments. At the current rate, it would take 112 years to offload these assets entirely. Ueda’s remarks follow the majority view, minimising dissenting opinions. The USD/JPY currency pair has erased earlier losses and stands at 147.95.
Governor Ueda’s comments tell us the Bank of Japan is in no rush to change course. He is clearly pushing back against the more hawkish members, reinforcing the majority view to wait for more data before hiking rates again. The market understood this signal, with USD/JPY immediately strengthening as hopes for a near-term rate hike faded.
This reinforces the view that being short the Japanese Yen remains the path of least resistance for now. The interest rate difference between Japan and the US is still massive, with the Federal Reserve holding its key rate around 4.5% while the BOJ remains near zero. This makes the carry trade, where we borrow yen cheaply to invest in higher-yielding US dollars, highly profitable.
For derivative traders, this means buying USD/JPY call options is an attractive strategy. It allows us to profit if the pair continues to drift higher toward the 150 level, while our risk is limited if the BOJ surprises everyone with a sudden policy shift. Implied volatility may be low given the BOJ’s steady hand, making options relatively cheap.
Internal BOJ Dynamics
However, we must watch the dissent from members Takata and Tamura very closely. While Ueda is downplaying it now, this is the clearest sign yet of a crack in the BOJ’s united dovish front. A surprisingly strong inflation report could easily embolden these hawks and shift the board’s consensus much faster than the market expects.
The data supports Ueda’s cautious stance for the moment. The latest core CPI print for August 2025 came in at 1.9%, confirming his statement that inflation is still below their 2% target. Furthermore, the most recent Tankan survey of business confidence showed a slight dip among large manufacturers, who are worried about global tariffs.
Looking back, this period of inaction feels very similar to the long pause after the initial small rate hike in March 2024. The BOJ has a long history of moving much more slowly than other central banks. For now, we should assume that pattern will continue until the inflation data undeniably forces their hand.
