Japan’s trade negotiator, Akazawa, recently had a 40-minute phone call with US Commerce Secretary Lutnick. After the call, Akazawa updated Japan’s Prime Minister Ishiba about the results of their discussion. Both Japan and the US agreed to take part in trade negotiations, but Japan is committed to not making easy compromises. Details about the negotiations are still unclear. Japan has until August 1 to make a deal with the US. The conversation between Akazawa and Lutnick shows that both sides are now communicating more directly and using established diplomatic channels to advance what have been cautious talks so far. Akazawa’s quick briefing to Ishiba highlights the increased attention in Tokyo’s leadership. It’s evident that Tokyo wants to hold its ground, especially with the tight timeline for discussions. As the August 1 deadline approaches, negotiators may feel pressured to find common ground—not based on ideology, but due to commercial realities. This is especially true in areas where tariffs are a key issue. However, it’s unclear if the talks have progressed beyond the initial stage. Due to this lack of information, market reactions may be subdued for now. As we get closer to mid-June, we expect market participants to start pricing in potential outcomes with more confidence, especially those involved with agricultural imports and automotive parts, which have been central in past discussions. Akazawa’s insistence on a firm position indicates more than just political posturing; it signals a willingness to wait if the terms remain unbalanced. Any agreement reached will significantly impact industrial commodities and logistics valuations in the medium term. Depending on the terms, traders might need to adjust their positions in related futures and options markets. From our view, this means paying attention to volatility levels, especially concerning yen-sensitive assets and export-driven equity indices. Hedging strategies may change as traders look for undervalued opportunities and seek to protect themselves if talks fall through. In the next two weeks, watching policy releases and signals from parliament will be essential. Although the negotiation specifics are not public, any changes in Ishiba’s commentary could provide clues about the talks’ direction. We believe these negotiations are unlikely to wrap up quickly. While this may limit short-term uncertainty, it increases the chances of sharp market movements as the deadline approaches. For those holding directional positions, paying attention to intraday liquidity may be important, especially in mid-July as potential risks emerge. As positions adjust based on new pricing from institutional desks, trading volumes outside domestic hours may become more affected. This is a crucial aspect for derivative strategies linked to overseas supply chains or those requiring bilateral approval. We expect policymakers to remain low-key. However, if further statements reinforce their current stance, we might see correlated asset classes moving toward cautious positions, with no immediate shift to higher-risk options.

here to set up a live account on VT Markets now