The U.S. government has announced a new 15% tariff on all Japanese imports. This was unexpected for Japan, which believed only products with tariffs under 15% would be affected, while those with higher tariffs would stay the same. At first, the yen seemed stable after the announcement. But as news spread that the tariff increase applied to all imports, the yen’s performance changed.

The Yen’s Decline

The yen is struggling due to these new tariff threats. The USD/JPY exchange rate has surpassed 155.00, reaching a multi-decade high not seen since the early 1990s. This increase is a direct result of the surprise 15% tariff on all Japanese imports. In light of this uncertainty, buying USD/JPY call options appears to be a smart move to benefit from potential future gains. This approach limits risk while taking advantage of the expected increase in market volatility. Implied volatility on yen options rose by 30% in the past 24 hours, indicating more significant changes are likely ahead. Japan’s economy will feel a heavy impact, making a weaker yen almost necessary. According to last quarter’s data from Japan’s Ministry of Finance, nearly 20% of all exports go to the U.S. A 15% tax on that amount could push the country back into recession. The Bank of Japan faces a tough situation, likely leading to more yen weakness. They need to address the economic slowdown caused by the tariffs, but Japan’s core CPI for July 2025 is already at 2.8%. They can’t easily raise interest rates to support the currency without harming their economy.

Equity Market Implications

We remember the sharp market ups and downs during the 2018-2019 trade disputes with China. This situation is similar, and betting against the dollar in such times has often ended poorly. Political pressure makes a quick resolution unlikely, suggesting this trend will continue. In addition to currency concerns, we should consider shorting Japanese stocks. The Nikkei 225 index includes major exporters like Toyota and Sony, whose profit margins will be negatively affected. Buying put options on a Nikkei-tracking ETF is a straightforward way to take advantage of potential declines. The biggest immediate risk to this strategy is possible intervention by Japanese authorities to boost the yen. The Ministry of Finance intervened in late 2022 and again in 2024 when the yen weakened past critical levels. Traders should be alert for verbal warnings as an early signal. Create your live VT Markets account and start trading now.

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