Japan’s Chief Cabinet Secretary Yoshimasa Hayashi has expressed his happiness with how the tariff agreement with the United States is being carried out. This agreement aims to make trade smoother and reduce tensions, and both countries have been following it closely. This announcement comes as global trade tensions persist, particularly regarding tariffs on key industries. Japan wants to maintain stable economic ties with the US, focusing on agricultural trade and supply-chain security.

Bilateral Tariff Deal as a Key Element

The bilateral tariff deal is seen as essential for maintaining a strong economic relationship. The USD/JPY currency pair has recently dropped slightly, currently around 147.38. With the focus on stable economic cooperation, sudden policy changes that could disrupt the currency market are unlikely in the near future. The current situation suggests that USD/JPY volatility will decrease, creating a trading opportunity. Strategies that benefit from stable prices and time decay could prove effective. Implied volatility on one-month USD/JPY options has fallen to a one-year low of 8.5%, indicating the market does not expect significant price movements. This makes strategies like selling options, such as an iron condor with strike prices around 144 and 152, appealing. The goal is to gather premium while the currency pair stays within a predictable range.

Support for a Strong Dollar

Strong support for the dollar against the yen remains due to the large interest rate gap. The U.S. Federal Reserve’s rate is 3.75%, while the Bank of Japan’s is just 0.25%. This creates a compelling advantage for holding long USD/JPY positions. Recent calm official statements suggest that this profitable carry trade is not at risk from immediate policy changes. Historically, the Ministry of Finance has intervened to strengthen the yen when the pair was above 150 in late 2022 and again in 2024. Comments from Tokyo indicate satisfaction with levels below this threshold, implying that the 150-152 range will likely serve as a strong barrier for now. Selling call options with strike prices in this zone could be a wise strategy to take advantage of this expected resistance. Additionally, domestic factors in Japan indicate a cautious approach from the central bank, as core-core inflation has decreased to 2.1% from its highs in 2024. This decline lessens the pressure on the Bank of Japan to implement strong monetary tightening, which would be the main risk to a stable USD/JPY. Thus, the fundamental factors supporting a steady or stronger dollar are likely to continue in the coming weeks. Create your live VT Markets account and start trading now.

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