Japan’s trade negotiator, Akazawa, will host a US delegation in Osaka this weekend. Before that, he will meet with Bessent in Tokyo tomorrow. These discussions come as progress between Japan and the US remains limited. The urgency is heightened by a warning from Trump about potential 25% tariffs starting on August 1.

US Delegation Visit

Bessent will arrive in Tokyo tomorrow. After the meeting, he will travel to Osaka for the US National Day event at Expo 2025 Osaka. The meeting between Akazawa and Bessent indicates possible market changes ahead. The approaching August 1st deadline for 25% tariffs brings uncertainty that traders can navigate with derivatives. Therefore, traders should ready themselves for significant moves in Japanese assets in the coming weeks. The Nikkei 225 index might be particularly affected, given its reliance on major exporters like Toyota and Sony. Past trade threats from 2018-2019 led to sharp falls in the Japanese stock market. To prepare for potential negative outcomes from the Osaka talks, we are buying put options on the index.

Market Volatility Strategies

We are closely monitoring the USD/JPY currency pair as the yen usually strengthens in times of geopolitical tension. One-month implied volatility for this pair has already risen above 9%, indicating the market is expecting larger price fluctuations. A setback in negotiations could lead to a stronger yen against the dollar. This situation suggests that strategies benefiting from increased volatility, regardless of the direction, are appealing. A long straddle—buying both a call and a put option on the Nikkei or USD/JPY—could effectively capitalize on significant market movements. The US goods trade deficit with Japan, which was $65.1 billion in 2023 according to the US Census Bureau, adds context to the pressure from America. Bessent’s background as a former hedge fund manager means these discussions are not typical diplomatic meetings, adding more unpredictability. His financial expertise suggests he understands how these negotiations affect asset prices. We will be watching the tone of any statements after his meetings in Tokyo and Osaka for hints on adjusting our strategies. Create your live VT Markets account and start trading now.

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