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    Japanese stocks are declining as the Nikkei 225 drops 2% in morning trading.

    by VT Markets
    /
    Sep 1, 2025
    Japanese stocks struggled after a selloff in the US markets on Friday. The Nikkei 225 fell about 2% in morning trading on Monday. In contrast, stocks in Mainland China and Hong Kong showed more strength, highlighting a clear difference in market performance.

    Significant Drop in Nikkei 225

    This morning, the Nikkei 225 saw a notable 2% decline, following a sharp selloff on Wall Street last Friday. The primary factor appears to be the unexpectedly high US PCE inflation data from August 29th, which came in at 3.1%. This has made investors nervous about potential future interest rate hikes by the Federal Reserve. As a result, Japanese stocks are feeling the pressure. The Nikkei Volatility Index surged over 30% to 24.5, reaching its highest point in months. This indicates growing fear in the market. Given this climate, buying put options on the Nikkei 225 might be a wise way to hedge against or speculate on further declines in the weeks ahead. Although increased volatility raises option costs, it also opens the door for larger price movements. This situation resembles what we encountered in late 2022 when aggressive Fed policies drove global market volatility. During that time, markets like Japan, sensitive to US interest rates, faced ongoing pressure. We should be ready for a similar scenario if the Fed continues its hawkish stance.

    Opportunity in Divergence

    The strength in the Chinese and Hong Kong markets presents a unique opportunity for a pairs trade. We could short Nikkei futures while going long on Hang Seng Index futures to capitalize on this divergence. This strategy is backed by China’s recent Caixin Manufacturing PMI, which unexpectedly rose to 51.2, indicating a different economic path compared to the West. Create your live VT Markets account and start trading now.

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