Mixed Results for Japan’s Growth

Capital spending grew by 0.6% from the previous quarter, but this was less than the expected 1.3%. Despite these mixed outcomes, positive GDP numbers have supported the Japanese yen. In July, the current account was 2.684 trillion yen, below the forecast of 3.366 trillion yen. However, bank lending in August rose by 3.6% compared to last year, surpassing the expected 3.2%. Nikkei futures rose 1.5% in early trading. Nevertheless, after Prime Minister Ishiba resigned, the yen weakened, with the USD/JPY exchange rate around 148.10. The surprisingly strong GDP growth in Q2, mainly due to doubling expected private consumption, indicates a solid economic foundation. This strong domestic demand boosts confidence in a continued rise for Japanese stocks. We are considering long positions in Nikkei 225 futures, especially as the index has already surpassed the 41,000 resistance level during early trading.

Opportunities Amid Political Uncertainty

Even with strong economic data, the yen remains weak due to political uncertainty, with USD/JPY around 148.10. This situation could present an opportunity because stronger economic fundamentals suggest the yen may rise once a stable government is established. We remember a similar scenario in mid-2024 when political concerns caused a temporary dip in the yen before it rebounded. We’ll be looking for signs of a political resolution to decide on shorting USD/JPY or buying JPY call options. The mixed signals of a strong economy and political instability indicate increased market volatility in the weeks ahead. The Nikkei Volatility Index rose 4% this morning to 18.5, showing market nervousness. This suggests that buying straddles or strangles on the Nikkei index could be a smart strategy to capitalize on significant price movements in either direction. One weak point in the data was the lower-than-expected capital expenditure, which suggests businesses may be reluctant to invest during this political turmoil. This hesitation is also seen in recent industrial production figures, which showed a slight decline of 0.2% for July 2025. We will closely watch policy announcements from the new administration, as any fiscal stimulus or pro-investment measures could particularly benefit stocks in the industrial and technology sectors. Create your live VT Markets account and start trading now.

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