The Bank of Japan raised its policy rate by 25bp to 1.0% and reiterated that it will keep scaling back its Japanese Government Bond purchase programme. Policymakers signalled confidence in underlying inflation even as headline CPI has cooled, keeping attention centred on the policy path and the pace of balance sheet normalisation.
Elsewhere, the Reserve Bank of Australia left rates unchanged at 4.35% while retaining a tightening bias. Market focus stayed on central bank signals, with risk appetite also supported by easing Middle East tensions and continued enthusiasm linked to AI.
Currency and Interest Rate Opportunities Driven by Diverging Central Bank Policies
We believe the Bank of Japan’s hawkish turn creates a clear opportunity in currency markets. With the policy rate now at 1.0% and JGB purchases being reduced, we are positioning for a stronger yen in the coming weeks. The yen has been hovering near the 170 level against the dollar, but this decisive policy shift, underpinned by Japan’s recent spring wage growth hitting a 30-year high of over 5%, should provide significant support.
The growing divergence in central bank policy suggests a rise in interest rate volatility is imminent. While the BoJ is tightening, Australia’s RBA is holding firm with a tightening bias after Q1 2026 inflation data came in hotter than expected at 4.5%. We are therefore looking at options on government bond futures to profit from potential sharp moves, rather than betting on a specific direction for global rates.
Tech Equities Maintain Momentum Amid Market Volatility
Despite the turbulence in rate markets, we see continued strength in technology-related equities. The AI-driven enthusiasm has propelled the Nasdaq 100 index to fresh highs above 22,000, and with Middle East tensions calming, broader risk appetite remains healthy. We are considering selling out-of-the-money puts on tech indices to collect premium, capitalizing on this persistent bullish sentiment.
