Japan’s Finance Minister Satsuki Katayama said compiling an extra budget remains an option, as the Prime Minister has stated before. She said the government is ready to take timely steps to limit the economic impact from the Iran conflict. Katayama also said Japan has not fully exited deflation. She linked possible policy action to economic conditions.

Policy Signals Diverge

Bank of Japan Deputy Governor Ryozo Himino said the BoJ is keeping monetary conditions accommodative. He said the bank will gradually adjust the degree of monetary accommodation. Himino said Japan is seeing inflation in the sense that consumer prices are rising, and that it is for the government to decide whether Japan is completely out of deflation. He said underlying inflation is gradually accelerating towards the BoJ’s 2% target. He added that the BoJ will keep scrutinising market moves and their impact on the economy and prices. At the time of publication, USD/JPY was up 0.16% at 157.80. The conflicting signals from the government and the Bank of Japan create uncertainty, which means we should expect volatility in the yen to increase. The Finance Minister’s mention of stimulus contrasts with the central bank’s hint at slowly tightening policy. This divergence suggests that positioning for a significant price swing, rather than a specific direction, could be a primary strategy.

Options Positioning And Key Levels

We must pay close attention to the Bank of Japan’s gradual adjustment language, as it hints at a move away from their ultra-easy policy. With the latest Tokyo Core CPI data for February 2026 showing inflation holding at 2.4%, well above the 2% target for over a year, the pressure for a rate hike is building. This environment makes buying call options on the JPY (put options on USD/JPY) an interesting play on a surprise policy shift. However, the government is clearly worried about the economy and is not convinced deflation is defeated, which could keep the yen weak. We remember how the Ministry of Finance stepped in with massive yen-buying intervention in late 2025 when the dollar-yen rate approached 160. Given we are now at 157.80, selling USD/JPY call options with a strike price near that 160 level could be a viable strategy to collect premium, betting that the government will act again. The geopolitical situation with Iran and the strong US economy add another layer of complexity. An escalation could increase oil prices, which typically weakens the import-dependent yen, but it could also trigger a flight to safety benefiting both the dollar and the yen. Meanwhile, with the US economy adding a robust 275,000 jobs last month in February 2026, the Federal Reserve is unlikely to cut interest rates, keeping the dollar fundamentally strong. Given these dynamics, traders might consider strategies that benefit from a cap on USD/JPY upside while offering protection against a sudden drop. A call spread on USD/JPY allows for modest gains but protects against the risk of intervention that we saw in 2025. Alternatively, owning outright JPY calls provides a direct bet that the BOJ will finally act more decisively than the market expects. Create your live VT Markets account and start trading now.

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