In October, foreign investment in Japanese stocks dropped to ¥690.1 billion from ¥1,344.2 billion the previous month. This indicates a significant decline in interest from international investors in Japan’s stock market. Other financial updates highlight expectations for the US Dollar Index to rise, while the Australian Dollar is predicted to fall ahead of China’s trade data release. Additionally, WTI crude oil prices have increased due to a weaker US dollar, even though concerns about a potential oil surplus linger.

Currency Dynamics

The People’s Bank of China set the USD/CNY reference rate at 7.0836, down slightly from 7.0865. The GBP/USD pair is recovering, while the EUR/USD pair faces resistance near 1.1670. Investor sentiment is also impacting cryptocurrency and commodities. Ethereum’s price has dipped below $3,300 as the market adjusts. Meanwhile, Gold has regained value, rising to $4,000 as uncertainty in the US economy makes it a preferred safe-haven investment. There has been a sharp fall in foreign investment in Japanese stocks, with the latest figures showing only ¥690.1 billion at the end of October. This is a significant drop from the ¥1.34 trillion recorded the previous week. The reduction in capital is a bearish signal, indicating that major global funds are pulling back from the Japanese market.

Impact on Derivatives

For derivative traders, this trend suggests considering protective or bearish strategies for Japanese equities. Buying put options on the Nikkei 225 index or shorting futures contracts could be beneficial as we potentially face a downturn. The index, which fell below 40,000 in late October 2025, could drop further due to this capital outflow. This situation is also influencing the currency markets. As foreign funds sell Japanese stocks, they need to sell the Yen to move their capital back, putting downward pressure on the currency. Strategies that capitalize on a weakening Yen, such as buying call options on the USD/JPY pair, are currently appealing. This trend aligns with a broader risk-off attitude seen worldwide, as gold recently surpassed $4,000 an ounce amid worries about the US economy. Historically, we’ve observed similar trends during past market corrections, like in 2018, where a notable drop in foreign investment preceded a decrease in the Nikkei. Such historical patterns lend credibility to the current bearish signals. With this growing uncertainty, we can expect implied volatility for Nikkei options to rise. Though this will increase the cost of buying options, it also opens up opportunities for strategies like selling bear call spreads. This strategy allows traders to profit if the index moves down, remains steady, or only slightly rises, all while clearly outlining the associated risks. Create your live VT Markets account and start trading now.

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