In May 2025, Japan saw a slight drop in core machinery orders, falling by 0.6% compared to the previous month. This decline was better than the expected 1.5% drop and a significant improvement from April’s 9.1% fall. Looking at the same month last year, core machinery orders increased by 4.4%, which was above the forecast of 3.4%, although it was lower than the previous year’s 6.6% growth. These figures are a sign of potential future investments over the next six to nine months, although they can change significantly. The monthly decline in machinery orders improved in May, but the yearly growth also slowed compared to earlier figures. This suggests that while the worst may be over, investment momentum is still cautious. For those watching economic indicators for trading opportunities, there are important takeaways. The smaller-than-expected monthly drop indicates that companies may be stabilizing their investment plans. The higher yearly growth, even if modest, shows some resilience among manufacturers, though growth isn’t matching previous peaks. It’s normal for this data to fluctuate significantly each month. The big drop in April created a low starting point, making May’s partial recovery easier to achieve. More importantly, analysts expected worse results but instead saw some stability. Kobayashi noted that the mild rebound suggests companies are slowly regaining confidence, especially in the non-manufacturing sectors where demand for services and infrastructure has been more stable. This aligns with other positive data, such as rising corporate profits and an increase in bank lending to businesses. In response, we should evaluate whether implied volatility reflects this new sense of stability. If the market still expects severe downturns, it might be overestimating risks in short-term futures and options. This could create opportunities for selling strategies or tighter spreads, particularly as macro uncertainty decreases. For those trading directionally, caution is still essential. While negative surprises seem to be lessening, the lack of a clear rebound means sustained gains in related risk assets are unlikely. The Bank of Japan hasn’t significantly reduced monetary support yet, but inflation expectations around the 2% mark suggest a potential shift by late summer. Saito, an economic adviser we’ve been following, warned against assuming a smooth recovery in machinery orders, especially with global trade under pressure and wage increases not fully boosting domestic spending. This highlights the need to stay adaptable with calendar spreads and prepare for uneven movements in equity-linked derivatives. For now, we should keep directional bets modest. Opportunities exist to benefit from the excessive optimism in rate-sensitive sectors. Better-than-expected machinery figures may cause a brief reevaluation, but without broad confirmation from other spending indicators, any bias might quickly return. Keeping positions small and adjusting strike ranges is wise. Monitoring whether this stability continues through June and July will be crucial. We have alerts set for any significant changes in purchasing patterns in industrial goods. A consistent recovery seems unlikely without stronger foreign demand, which hasn’t yet shown up in container exports or semiconductor shipments. Until we see clear evidence of this, it’s better to remain light and flexible. As we plan through mid-Q3, focusing on vertical spreads with defined risk may provide the best approach. If we experience another sharp deviation in results, implied volatility is likely to react strongly. This creates an opportunity for those willing to engage in short volatility and manage risks close to expiry.

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