In Asian trading on August 7, 2025, tariffs took center stage. China announced a 7.2% jump in USD-denominated exports for July, exceeding the expected 5.4%. The People’s Bank of China set the USD/CNY reference rate at 7.1345. In another development, Saudi Arabia raised oil prices for Asia due to tight supply and expected demand growth from India. During this session, the U.S. revealed plans for a 15% tariff on all imports from Japan, which impacted the yen. The USD/JPY rose above 147.50 but later stabilized. This tariff applied to all imports, regardless of previous rates. Additionally, there were discussions about 100% tariffs on chips and semiconductors, although potential exemptions for U.S. manufacturing investments were mentioned. Companies like Apple and TSMC received exemptions, which boosted their stock prices.

Market Movement and Predictions

In the broader market, the Nikkei 225 climbed by 0.7%, the Hang Seng increased by 0.3%, while the S&P/ASX 200 fell by 0.2%. Federal Reserve officials hinted at potential rate cuts, echoing comments from San Francisco Fed President Mary Daly. Overall, the currency market was stable, except for the yen, which was influenced by tariff news. Given the yen’s sharp decline after the tariff news, continued weakness is likely. With USD/JPY crossing 147.50, traders might consider buying call options on this pair to take advantage of further increases. This level of political pressure on the Japanese economy is unprecedented in decades and indicates a significant policy shift that the market is just starting to adjust to. The new tariff policy is creating clear winners and losers in the tech sector. The PHLX Semiconductor Index (SOX) reflects this divide, with companies like Apple and TSMC that secured exemptions outperforming others. Derivative traders could benefit by purchasing call options on these preferred companies while considering put options on competitors with less U.S. manufacturing presence, making them more vulnerable to the 100% chip tariff.

Federal Reserve and Market Volatility

Officials from the Federal Reserve are clearly indicating that rate cuts are imminent. The CME FedWatch Tool shows an 85% probability of a rate cut at the September 2025 meeting, a jump from 50% just two weeks prior. Traders may want to consider futures contracts tied to SOFR, which will likely increase in value as interest rates decline. Overall market volatility is rising, with the VIX index climbing from the low teens to over 22 in the past month. The uncertainty surrounding these tariff announcements poses significant headline risk. Using out-of-the-money put options on the S&P 500 or call options on the VIX can be a cost-effective way to hedge against sudden market drops. Energy markets are tightening, as evidenced by Saudi Arabia raising prices and the EIA report showing a larger-than-expected draw in inventory. With BP projecting strong demand, we can expect stable oil prices through the year. Traders can gain exposure by buying call options on WTI crude futures. Create your live VT Markets account and start trading now.

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