Currency Movements and Trade Discussions

The yen fell early Monday morning in Asia after Japanese Prime Minister Ishiba resigned. As a result, the USD/JPY exchange rate reached about 148.10. This decline in the JPY started around 7:35 am in Sydney, 6:35 am in Tokyo, and 5:35 am in Hong Kong and Singapore. The situation reflects changes following the Prime Minister’s resignation. Currency and trade conversations have included Trump’s proposal for a 15-20% tariff on all EU goods, which affects EUR/USD. Meanwhile, China plans to reopen its bond market to Russian energy firms and wants to boost the yuan’s global presence with a possible offshore RMB stablecoin. OPEC+ announced it will increase oil output in October, driven by Saudi Arabia’s strategy to capture market share. In addition, China has bought gold for ten consecutive months, pushing bullion prices above $3,500 an ounce. A high-risk warning advises that trading foreign exchange can be risky and may lead to significant losses. Individuals should evaluate their experience and risk tolerance, and seek professional advice if necessary. investingLive provides information only and may earn money from ads.

Volatility and Trade Opportunities

The sudden resignation of Prime Minister Ishiba has caused USD/JPY to jump to the 148 level, creating an immediate volatility spike. We see this gap as a short-term trading opportunity for a return to pre-announcement levels. Traders might consider buying near-term put options on USD/JPY or selling call spreads, but they should note that implied volatility is currently high. This political uncertainty in Japan could keep the yen weak in the medium term, even if the gap closes. We remember the market chaos after Prime Minister Abe’s resignation in 2020, which created lasting uncertainty. A potential strategy in the coming weeks could involve buying longer-dated call options on USD/JPY to bet on further weakness once the current volatility eases. On the dollar’s side, renewed talk of protectionist trade policies supports its value. Reports of possible 15-20% tariffs against the EU have led to a flight-to-safety demand for the dollar, which may prevent USD/JPY from dropping too far. The Dollar Index (DXY) rose over 10% during the 2018-2019 trade disputes, which supports a long-dollar strategy. The overall geopolitical picture shows a trend away from the dollar, with China purchasing gold for the tenth month in a row. Central banks have been increasing gold reserves for years; global reserves grew by over 1,000 tonnes in 2022 alone. This long-term move away from the dollar, combined with gold prices exceeding $3,500 an ounce, suggests that extreme dollar strength could be limited over time. Finally, OPEC+’s decision to raise oil output is a positive sign for the yen, which often suffers from high energy prices. Japan imports over 90% of its energy, so lower crude costs can help its trade balance. This may offer a basic support level for the yen and limit movements above the 150 level, a point where the Bank of Japan intervened with over $60 billion in late 2022. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now