Japanese Prime Minister Ishiba is expected to resign soon, potentially by the end of July. Yomiuri has reported that his resignation could happen very soon. Originally, there were suggestions that Ishiba might step down by the end of August. Due to political pressure, he plans to meet with other political leaders Aso and Kishida.

Influence Of Yomiuri Shimbun

Yomiuri Shimbun is a major Japanese newspaper with a large readership. It was the first to report on Ishiba’s possible resignation and is known to be one of the most influential papers in the world. Owned by the Yomiuri Group, this media conglomerate includes television and publishing and plays a key role in shaping public opinion in Japan. Reports about the prime minister’s potential resignation signal possible market turbulence. This political uncertainty, especially with a possible resignation this month, could lead to changes in the pricing of Japanese assets. The derivative markets may see increased activity as investors seek to protect themselves or speculate on future outcomes. Our immediate concern will be currency volatility, focusing on the yen. The one-month implied volatility of the yen against the dollar has risen above 9%, up from around 7% earlier this year. This jump indicates traders expect larger price fluctuations. As a result, options strategies that aim to benefit from this anticipated volatility, rather than just direction, are particularly appealing.

Market Reactions And Strategy

We also need to pay attention to the Nikkei 225, which has already pulled back from its record highs set in March. We expect a rise in demand for put options on this index as a way to hedge against potential market declines due to foreign investor caution. The volatility index for Japanese stocks, the VXJ, has been increasing, reflecting unease among market participants. Historically, markets react sharply but briefly to a leader’s resignation, quickly refocusing on the new leader. When Ishiba’s predecessor resigned in August 2020, the Nikkei saw a quick drop but then bounced back as investors anticipated continuity in policies from the new administration. The main point is that the new leader’s identity and policy approach are more important than the resignation itself. The upcoming meetings with key political figures like Aso and Kishida are vital to watch, as they may signal who the next leader will be. A candidate likely to push the Bank of Japan for faster policy changes would cause a different market reaction than one seen as keeping things the same. This range of possible outcomes creates different trading opportunities. Given the uncertainty, we believe strategies that can profit from significant moves in either direction are wise in the coming weeks. Options strategies like long straddles on currency pairs such as USD/JPY or on Nikkei futures could capture the expected volatility spike. Traders should act quickly, as the cost to buy this volatility, or the premium, is already increasing. Create your live VT Markets account and start trading now.

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