Japan’s election results influenced the yen, while New Zealand’s inflation data had a negative impact on the NZD.

    by VT Markets
    /
    Jul 21, 2025
    The Japanese yen gained value after Japan’s Upper House election results. Prime Minister Ishiba’s coalition lost its majority in both the Upper and the Lower House, leading to uncertainty in Japan. The USD/JPY exchange rate briefly dipped below 147.80 but climbed back to above 148.60, later stabilizing between 148.30 and 148.55. Japan’s markets were closed for the Marine Day holiday, impacting yen liquidity. New Zealand’s inflation data for the second quarter showed the annual CPI increase at 2.7%, slightly lower than expected. The quarterly CPI rose by 0.5%, also below expectations. As a result, the NZD/USD fell to around 0.5940. The Reserve Bank of New Zealand’s Sectoral Factor Model pointed to inflation easing to 2.8% year-on-year, with non-tradeable inflation dropping to 3.7%, reinforcing the possibility of a rate cut in August.

    People’s Bank Of China Rates

    The People’s Bank of China held its Loan Prime Rates steady: – 1-year LPR: 3.00% – 5-year LPR: 3.50% Most major currency pairs remained stable, trading in narrow ranges. In the stock market, Hong Kong’s Hang Seng index rose by 0.3%, while Shanghai Composite increased by 0.4%. Japan’s Nikkei 225 was closed due to the holiday. The political deadlock after Ishiba’s coalition loss brings significant uncertainty for the yen. We saw this as the USD/JPY dipped and then sharply rebounded, indicating the market is reassessing risk. We recommend buying volatility through USD/JPY options, like straddles, since one-month implied volatility is just under 10%, which may not fully capture the potential for drastic policy changes.

    New Zealand’s Economic Outlook

    New Zealand’s lower inflation figures, especially the drop in non-tradeable inflation to 3.7%, strengthen the case for a central bank policy change. The market now sees over a 75% chance of an interest rate cut in August, indicating a clear direction for the currency. Therefore, we find it valuable to position for further kiwi weakness by purchasing NZD/USD put options or establishing bearish risk reversals. China’s central bank’s decision to keep rates steady shows a preference for stability over aggressive stimulus for now. This aligns with recent mixed economic signals, such as the Caixin Manufacturing PMI slightly above the 50 mark, suggesting slow growth. Traders might consider selling covered calls on Hang Seng index trackers to profit from the anticipated range-bound price action. Create your live VT Markets account and start trading now.

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