Japan’s Prime Minister Ishiba has shared updates on tariff discussions with the United States. While talks are ongoing, Japan is determined to protect its auto industry and agriculture from negative impacts. Akazawa has made several trips to Washington, but Japan’s commitment to safeguarding these industries is still strong. With only 29 days until a critical deadline, the outcomes of these discussions are highly anticipated. In the previous update, we highlighted Japan’s strong stance in trade talks, especially regarding tariffs. Ishiba noted that some progress has been made, yet key sectors like automobiles and agriculture remain off the table for compromise. Akazawa’s frequent travels to Washington highlight how important it is for Japan to secure favorable terms quickly. From a trading perspective, time is of the essence—less than a month remains, and that could either speed up or slow down changes in various asset classes related to Japanese exports. We are closely monitoring implied volatility in yen-denominated futures, which has seen a slight uptick. This suggests that some traders are becoming cautious due to political uncertainty rather than economic fundamentals. Japan’s strong protection of its domestic industries is expected, but it may mean that any agreement reached by the deadline won’t significantly change Japan’s trading activities in the short term. However, any hint of a change in Washington’s tone could impact USD/JPY options and spreads in corporate bonds linked to the auto industry. Recently, we observed a slight widening in 3-month risk reversals. Short-term interest rate futures may not show much change, but we should keep an eye on hedging activity tied to export-heavy sectors. The upward trend in mid-tenor Japanese Government Bonds (JGBs) suggests traders might be reallocating risk, anticipating potential government actions or statements. Any unexpected remarks from the US in the final days could lead to quick adjustments in pricing. Akazawa’s frequent presence in Washington reflects not just negotiations but also creates a sense of urgency for institutional investors. We’ve noticed some repositioning in synthetic forwards and equity-linked derivatives, especially those related to transport and rural cooperative outputs. In the last 48 hours, open interest in select Nikkei options has slightly decreased, possibly because traders are taking profits ahead of potential news or unexpected shifts. Keep an eye on front-end gamma, as it could be vulnerable leading up to formal announcements. Given Japan’s firm stance on industrial protection and the tight timeline, any sudden changes in trading positions are likely to happen quickly. It’s advisable to keep delta risk minimal and adjust positions more often until there is a clearer direction.

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