Reports suggest that the US may impose an extra 15% tariff on Japan, which is impacting the value of the yen. The USD/JPY exchange rate is climbing and is currently above 147.50, according to Japanese news channels like Kyodo. Recent news clarifies that there is no signed trade deal between the US and Japan. Japanese officials have confirmed that there are no binding commitments in place.

Trade Agreement Status

Japanese representative Akazawa stated that the trade agreement is not legally binding. He plans to return to the US for more talks since no tariff agreement has been set yet. The potential 15% US tariff on Japan is causing the yen to drop significantly. The USD/JPY exchange rate has risen above 147.50, reflecting market concerns over this new trade tension. This situation is worsened by the noticeable interest rate difference between the US and Japan: the Federal Reserve’s rate is over 4.5%, while the Bank of Japan keeps its rates very low. The comments from Japanese officials about the absence of a legally binding deal create major uncertainty in the coming weeks. This could lead to increased market volatility driven by news and updates on negotiations. It reminds us of the sharp currency fluctuations we experienced during the 2018-2019 trade disputes, where rumors and official statements heavily influenced market movements.

Currency Intervention Risks

As USD/JPY nears the 150 mark, derivative traders should be wary of possible currency intervention by Japanese officials. In late 2022, Japan spent over $60 billion to support the yen when the exchange rate hit similar psychological levels. The market will be watching closely for any verbal signals from officials, which often hint at possible direct actions. Given the upward trend and high event risk, a defined-risk options strategy like a bull call spread on USD/JPY looks wise. This could involve buying a call option with a strike price around 148 and selling another call at a higher strike, maybe near 151. This way, traders can profit from a further increase in the exchange rate while limiting potential losses if negotiations improve or if the Bank of Japan intervenes. Create your live VT Markets account and start trading now.

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