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    Japan’s Prime Minister plans to tackle inflation and tariffs by guiding ministers on economic strategies.

    by VT Markets
    /
    Sep 2, 2025
    Japan’s Prime Minister, Shigeru Ishiba, plans to instruct ministers to create new economic measures to address issues like inflation and U.S. tariffs. This directive might come as early as this week. Ishiba faces calls for his resignation from some lawmakers, but he has regained some public support. The ruling Liberal Democratic Party (LDP) is set to finalize a report today, examining their losses in the upper house election from July. We are looking for details about Prime Minister Ishiba’s economic package this week. The Nikkei 225 has had difficulty surpassing the 42,000 mark for a month, and this stimulus could provide the necessary boost. Traders should think about buying near-term call options on the index to take advantage of a possible government-driven rally. Addressing inflation is crucial, especially with the core CPI recently reported at 2.8% for July 2025, significantly above the Bank of Japan’s target. This situation pressures the Bank of Japan (BoJ) to shift away from the ultra-loose policies that continued even after the minor hikes in 2024. We anticipate increased volatility in USD/JPY currency options, likely favoring yen strength. We also need to guard against the threat of U.S. tariffs, an ongoing concern since the late 2010s that still unsettles the market. Japan’s auto industry, which saw its stock index drop 5% last quarter just due to tariff discussions, remains especially at risk. Purchasing put options on auto manufacturer ETFs or the broader Topix index could be a wise defensive strategy. While Prime Minister Ishiba’s public support has risen to 35%, his position remains unstable after the LDP’s weak election results in July. This uncertainty may lead to higher options premiums. We think buying straddles on the Nikkei 225 could be a smart move, allowing for profit from significant market movements in either direction as the political situation unfolds.

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