Japan’s Prime Minister, Shigeru Ishiba, wants to talk with former US President Donald Trump about trade issues. This comes after a recent election loss, which has made it crucial for Ishiba to secure a tariff agreement with the US while protecting Japan’s interests. Ishiba stressed the need to stay in office to deal with tariff discussions, rising inflation, and economic hurdles. He has no plans to change his team or expand his government coalition but aims to work with other parties to tackle increasing prices.

Election Challenges

Despite his objectives, Ishiba’s authority has taken a hit from the election results. As a result, Japan may struggle to meet the August 1 deadline for tariff negotiations in this difficult environment. Ishiba’s weakened position raises worries about market stability. The uncertainty around his negotiation skills before the August 1 deadline poses a major risk. Traders should prepare for significant fluctuations in Japanese assets, especially since core inflation reached a two-year high of 2.5% in May, adding to economic stress. The Japanese Yen is especially sensitive to this political instability and the trade talks ahead. There is a high chance that the USD/JPY currency pair might approach its recent 38-year high near 161. Traders could think about buying call options on USD/JPY to profit from or protect against further Yen declines.

Effect on Japanese Stock Market

The current situation poses challenges for the Japanese stock market, particularly for major exporters. If Ishiba fails to secure a good deal, it could directly harm corporate profits, putting the Nikkei 225 at risk of falling. We recommend that traders consider buying put options on the index to prepare for negative results from the tariff discussions. Past trade disputes from 2018-2019 showed that markets react strongly to negotiation news, with the Nikkei facing several single-day losses of over 2%. A similar volatile pattern is expected now, making strategies that profit from significant price changes in either direction—like long straddles—appealing. Ishiba’s wish to collaborate with other parties without expanding his coalition indicates a fragile government, likely leading to legislative deadlock and further unsettling investors. Create your live VT Markets account and start trading now.

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