**Japan Exports to China Drop** Japan’s trade balance showed a deficit of ¥117.5 billion, which was unexpected. Analysts had predicted a surplus of ¥196.2 billion. Exports to Asia decreased slightly by 0.2% compared to last year. Specifically, exports to China fell by 3.5%. Exports to the United States dropped by 10.1%, and those to the European Union went down by 3.4% during the same period. The surprising trade deficit in July, caused by weaker exports, indicates that global demand is weakening more than anticipated. The decline in exports to major partners like the US and China raises concerns for Japan’s export-dependent economy. As a result, we expect Japan’s stock market and the yen to face downward pressure in the coming weeks. **Yen and Equity Market Predictions** This data strongly suggests a weaker yen, especially since the Bank of Japan is unlikely to tighten its policies with growth slowing. Recent inflation figures from July 2025 revealed a core CPI of only 1.8%, below the BoJ’s target. This supports the idea of maintaining an easy monetary policy. We should consider buying USD/JPY call options to benefit from a potential move towards the 155-160 range, a level not seen consistently since late 2024. The overall decrease in exports will directly impact the earnings of major companies in the Nikkei 225 index. This aligns with the latest Jibun Bank Manufacturing PMI, which fell to 49.6, indicating that factory activity is contracting for the first time in six months. We should think about purchasing Nikkei 225 put options or implementing bearish put spreads as protection against a market downturn. This unexpected negative data is likely to increase market volatility. We remember the spikes in 2023 when similar weak trade numbers were released, causing the Nikkei Volatility Index to surge over 20%. Traders could take advantage of this by buying straddles on the Nikkei, which would profit from significant price movements in either direction. Additionally, the 7.5% drop in imports shows weak domestic demand, despite being better than expected. This is backed by the latest report on household spending, which showed a year-on-year decline of 1.2%. This internal weakness further supports our expectation that the Bank of Japan will remain dovish, reinforcing our strategies of a weak yen and bearish equities. Create your live VT Markets account and start trading now.

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