Japan’s trade negotiator, Akazawa, will visit the U.S. now that administrative issues have been resolved. The purpose of this trip is to discuss trade topics further and seek a presidential order to finalize agreed tariffs. The main goal is to ensure that current tasks are completed without triggering an early leadership election in the Liberal Democratic Party (LDP). Akazawa’s visit emphasizes Japan’s dedication to advancing trade relations with the U.S.

Administrative Hurdles Cleared

With the administrative issues cleared for U.S.-Japan trade talks, we can expect less market uncertainty in the coming weeks. The last step seems to be a U.S. presidential order, which would reduce the uncertainty that has contributed to market volatility. We forecast that the Nikkei Volatility Index, currently around 19, could drop to its year-to-date lows near 16 once a deal is signed. This progress indicates a “risk-on” environment, which usually leads to a weaker yen as investors shift away from safe-haven assets. USD/JPY has been trading within a narrow range of 158 to 160 throughout August 2025, mainly due to the interest rate gap between the U.S. and Japan. A finalized trade agreement might push the currency pair higher, making short-term call options with a 161 strike price appealing. For stocks, removing tariff threats will provide a boost to Japan’s export-focused Nikkei 225 index. Exports to the U.S. already saw a strong 7.5% increase in the second quarter of 2025. A formal agreement should enhance corporate earnings, particularly for automakers. We are looking at Nikkei 225 futures as a way to benefit from a potential rally back to the 43,000 level, as seen last in May.

Political Stability Key Factor

Political stability is also important because it reduces a domestic risk that has worried investors. We remember the market’s nervousness during the leadership change in late 2024. Now that the Ishiba administration appears secure, the political risk premium is lower. This supports our belief that selling volatility is the best strategy as uncertainties are being removed from the market. Create your live VT Markets account and start trading now.

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