Today, there’s not much happening in data releases, except for the Eurozone consumer confidence report. This means markets will likely continue trending based on what we already know. In Japan, the government has reached an agreement with the US, but the anticipated resignation of PM Ishiba steals the spotlight. This situation may lead to the Bank of Japan raising interest rates sooner than expected. **Fiscal Policy Changes** The ruling party may loosen fiscal policy by making concessions. Additionally, the trade deal could help the central bank understand tariffs better. With no new data to guide us, Japan’s political scene should be our main focus. Current Prime Minister Fumio Kishida’s approval ratings are near record lows, below 25%. This raises the possibility that a new leader, possibly Ishiba, could step in. Traders should keep an eye on this potential leadership change. This political uncertainty, along with the US trade deal, suggests that we may want to prepare for a stronger yen. The yen recently fell to a 34-year low against the dollar, surpassing the 157 mark. This opens up a chance to buy yen call options or USD/JPY put options, which can offer a low-risk way to benefit from a significant shift in the currency’s value. **The Case for a Stronger Yen** The main reason for our optimistic view is that the Bank of Japan has more flexibility than many think. Japan’s core inflation, which excludes fresh food, was at 2.2% in April 2024, marking the 25th month it has met or exceeded the central bank’s 2% target. This steady inflation supports the idea that the bank will continue to normalize its policies after ending negative interest rates in March. If the government changes, this timeline could speed up. A new administration might implement fiscal stimulus to gain public support, which would increase inflationary pressures. This situation could force the central bank to raise interest rates sooner to keep prices stable. We also have to think about how this will affect Japanese stocks. A stronger yen typically reduces profits for major exporters, which are a significant part of the Nikkei 225 index. Therefore, buying put options on the Nikkei could be a smart hedge or an independent speculative move. Given the current calm, the options market may not fully account for the rising political risks. This offers an opportunity to create trades that could benefit from a significant price shift, favoring yen appreciation. Historically, when the central bank has tightened policy, the currency often rallies quickly and strongly. Create your live VT Markets account and start trading now.

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