Japanese Prime Minister Ishiba has resigned, leading to an increase in the yen as USD/JPY and its counterparts reach multi-month highs. A leadership election is expected in early October, following Ishiba’s coalition’s significant election loss. Revised GDP data shows Japan’s economy grew by 2.2% annually in Q2, up from an initial estimate of 1.0%, driven by private consumption. China’s trade data for August reveals rising exports, but U.S. shipments dropped by 33% year-over-year, with overall growth failing to meet expectations. The yen remains weak due to ongoing political uncertainty, prompting the Bank of Japan to likely hold off on policy changes until new leadership is appointed.

Market Movements

In other news, Japan’s Nikkei 225 index rose by 1.5%, reaching an all-time high, alongside the TOPIX index. In contrast, stocks in Hong Kong gained a modest 0.35%, while the Shanghai Composite climbed 0.11%. In Australia, the S&P/ASX 200 fell by 0.27%. China is maintaining its economic trajectory, with stable exports in yuan terms, despite a slight underperformance in dollar terms. There is cautious optimism about upcoming events like the BRICS summit and broader international relations that might influence markets. Political uncertainty in Japan is currently the main factor affecting the yen, keeping it weak. We anticipate the USD/JPY exchange rate to approach 150, a crucial psychological threshold that prompted intervention alerts in late 2022. Traders in derivatives might consider purchasing call options on USD/JPY to take advantage of further yen weakness ahead of the October leadership election. The instability surrounding the Bank of Japan’s future policy is leading to increased currency volatility. This week, one-month implied volatility for USD/JPY has surged to over 12%, compared to an average of 8% last month. This indicates that strategies like buying straddles could be profitable, anticipating a significant price movement once a new prime minister is named.

Economic Strain and Markets

China’s disappointing trade data, especially the 33% drop in exports to the U.S., points to ongoing economic pressure despite internal stimulus efforts. The People’s Bank of China appears hesitant to lower interest rates, creating a shaky future for the yuan. This weakness could also affect related currencies like the Australian dollar, which has already seen a 5% decline in exports to China last quarter. Given the weak trade results from China, options could be used to express a bearish outlook on assets linked to Chinese growth. Buying put options on the Australian dollar against the U.S. dollar (AUD/USD) might be an effective hedge against more negative economic data. The pair recently fell below the important 0.6400 support level, and further weak figures from China could push this decline faster. Attention is now focused on this week’s U.S. CPI data, especially after last month’s report showed core inflation stubbornly high at an annualized rate of 3.8%. Another high inflation reading would pressure the Federal Reserve to maintain its current restrictive policies, strengthening the U.S. dollar further. This macroeconomic headwind makes short-yen or short-yuan positions more appealing. Lastly, gold prices continue to rise, surpassing $3,500 an ounce, supported by ongoing central bank purchases. The most recent World Gold Council report from August 2025 showed that demand from official sectors remains at record levels, a trend growing since 2022. Traders may consider buying call spreads on gold futures or related ETFs to capitalize on this upward trend while managing premium costs. Create your live VT Markets account and start trading now.

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