Japanese Prime Minister aims to strengthen US trade relations despite challenges within his party
by VT Markets
/
Jul 24, 2025
Japan’s Prime Minister, Shigeru Ishiba, has promised to quickly put a trade deal with the United States into action. He assured that any business concerns will be met and said there are no disagreements between Japan and the US on rice and defense equipment in the trade deal.
However, there are rumors about Ishiba’s future in politics. Even though he appears strong publicly, there’s talk that members of Japan’s ruling LDP party may want to replace him. An internal party meeting is expected to be held next week.
Market Concerns about Political Risk
We believe the prime minister’s statements may be hiding serious political risks. The market is anticipating instability with the upcoming internal party meeting. His attempts to reassure businesses are unlikely to succeed given his shaky position.
The key here is to trade the uncertainty itself, rather than predicting a specific outcome. We think the best strategy is to buy volatility on the Japanese currency. The one-week implied volatility for USD/JPY has risen from about 7% to over 9.5% as traders prepare for political changes.
This strategy will benefit from a significant price movement, whether the yen gains strength due to a disruptive departure or weakens. Looking back, the unexpected resignation of a past prime minister in 2020 led to the Nikkei 225 dropping over 2% in a single day. We expect similar or even larger movements, making put options on the index a good hedge or speculative choice.
Effects on Monetary Policy
The political unrest also complicates the Bank of Japan’s decisions, especially with core inflation around 2.5%. A leadership gap makes it less likely for any significant changes in monetary policy, which could put long-term pressure on the currency. Thus, we are preparing for a sudden, unpredictable shift in the coming days.
Create your live VT Markets account and start trading now.
by VT Markets
Jul 24, 2025
Insights 
VT 
