After meeting with Japan’s Prime Minister, BoJ Governor Kazuo Ueda discussed the economy and monetary policy. Decisions on monetary policy will be made while reviewing various data.
The BoJ aims to stably achieve a 2% inflation target by adjusting the degree of monetary support. While foreign exchange matters were discussed, no details were provided on this aspect. A stable foreign exchange rate is preferred, reflecting economic fundamentals.
Market Reaction
Following these remarks, USD/JPY traded around 155.00, experiencing a 0.12% decrease. The Bank of Japan is the central bank, focusing on currency and monetary control to ensure price stability with a 2% inflation target.
Since 2013, the BoJ employed an ultra-loose monetary policy to stimulate the economy, utilising Quantitative and Qualitative Easing. In 2016, it further loosened the policy by introducing negative interest rates and controlling the 10-year government bond yield.
In March 2024, the BoJ increased interest rates, shifting from its previous policy. This decision came as a weaker Yen and rising global energy prices pushed Japanese inflation over the 2% target. Expected rising salaries in Japan further influenced this policy change.
BoJ Policy Outlook
We see that Governor Ueda’s comments reinforce the Bank of Japan’s cautious, data-dependent stance on future policy. He is signaling that while the process of normalizing policy from the ultra-loose era is underway, any future moves will be slow and deliberate. This creates an environment of uncertainty where upcoming data releases will be scrutinized heavily by the market.
With core inflation having tracked at 2.4% in October 2025, the BoJ has reason to consider further tightening after the small rate hikes we saw earlier this year. However, wage growth from the 2025 Shunto negotiations came in at a more moderate 3.8%, giving policymakers pause about the sustainability of the wage-price spiral. This conflicting data explains the governor’s hesitant tone and suggests the next policy meeting in December will be a live one.
His specific mention of foreign exchange is a clear signal to the market. With the USD/JPY trading at 155, a level that prompted verbal and actual intervention back in 2024, his desire for stable moves reflecting fundamentals is a coded warning. We should interpret this as a sign that the government’s tolerance for further yen weakness is wearing thin.
For derivatives traders, this environment suggests implied volatility in yen options may be underpriced. The risk of a surprise policy shift or sudden intervention is elevated, making long volatility strategies attractive. Buying JPY call options (or USD/JPY put options) offers a defined-risk way to position for a sharp appreciation in the yen.
The interest rate differential between the US and Japan also remains a dominant factor, even with the Federal Reserve holding rates steady near 4.0% for much of 2025. This reality means the yen-funded carry trade is still tempting, but Ueda’s comments increase the risk of a sudden reversal. Therefore, using forward contracts or currency swaps to hedge exposure to a sharp yen appreciation is becoming increasingly prudent.
