Economic data from China for July 2025 fell short of expectations in several important areas. Retail sales increased by just 3.7% compared to the same time last year, missing the forecast of 4.6% and down from the previous 4.8%. Industrial production grew by 5.7% year-on-year, also below the expected 6.0% and down from 6.8% earlier. Fixed asset investment rose by only 1.6% from January to July, falling short of the forecasted 2.7% after a prior increase of 2.8%. The unemployment rate edged up to 5.2% from 5.1%. The National Bureau of Statistics (NBS) noted this increase is partly due to the college graduation season. Year-to-date industrial production showed a slight decline to 6.3%, down from 6.4% before. Extreme weather, like heatwaves and flooding, has also impacted economic activities in some regions.

National Bureau of Statistics Statement

The NBS mentioned that despite external changes and bad weather, the economy is showing a steady trend. However, issues like the property market’s debt burden are hurting investment and consumer demand. While tariffs on exports haven’t hurt as badly as expected, future challenges are still possible. The disappointing July 2025 data indicates a continued economic slowdown in China, increasing pressure on Beijing to respond. We expect an interest rate cut from the People’s Bank of China (PBOC) soon, likely targeting the one-year loan prime rate (LPR) this month. This anticipation will guide our short-term strategies, focusing more on policy changes than the data itself. This outlook favors shorting the offshore yuan (CNH) against the U.S. dollar, as policy easing is likely to weaken the currency. We are also taking more bearish positions on the Australian dollar since over a third of Australia’s exports go to China. Buying put options on the AUD/USD currency pair provides a low-risk way to capitalize on this expected weakness. For stocks, we are purchasing put options on popular China ETFs like FXI, anticipating further declines as global investors react to this news. The CBOE China ETF Volatility Index (VXFXI) has already risen, and we expect it to increase in the coming weeks. This suggests that long volatility positions could be profitable as uncertainty grows.

Industrial Production and Commodity Prices

The decline in industrial production and fixed asset investment is a bad sign for industrial commodities. Therefore, we are strengthening our short positions in copper and iron ore futures contracts. This trend is similar to the significant drop in commodity prices during China’s slowdown from 2015 to 2016, which stemmed from concerns about industrial demand. While the NBS notes seasonal factors behind the rise in unemployment, we remain cautious. Youth unemployment hit a record high of over 21% in mid-2023, indicating that this is a long-term structural problem, not just a passing issue. This weakness in the job market will continue to weigh on the disappointing retail sales figures. The main problem still lies in the property sector’s debt crisis, which we have been watching since the major defaults of Evergrande and Country Garden in previous years. This crisis continues to hurt consumer confidence and hinders a real recovery in investment. Without a credible, large-scale solution to this dilemma, we will view any government-triggered rallies with skepticism and look for opportunities to reverse such movements. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Japan’s finance minister, Mr. Kato, said that monetary policy is managed by the Bank of Japan (BOJ). He expects the BOJ to implement the right monetary strategies to meet its price targets consistently and in harmony with the government. Mr. Kato chose not to respond to comments from US Treasury Secretary Scott Bessent, who recently criticized the BOJ and suggested it should raise interest rates.

Resisting Foreign Pressure

These comments indicate that the Bank of Japan plans to resist outside pressure to raise interest rates right away. We believe this is an official effort to shape market expectations before the next policy meeting, which may result in ongoing weakness of the yen as long as the BOJ sticks to its own schedule. The significant gap in interest rates is the main factor for currency traders. The US Federal Reserve’s rate is fixed at 5.25%, while the BOJ’s rate sits at only 0.10%. This creates a strong incentive to sell the yen and buy higher-yielding dollars. Currently, the USD/JPY exchange rate is close to 165, a level that has often raised alarms in the past. Recent data supports the BOJ’s cautious approach, which we think they will continue. Japan’s core Consumer Price Index for July 2025 showed a slight drop to 2.1%, down from 2.3% in June. This data suggests that inflation is stabilizing around the 2% target, meaning there’s less urgency for a rate hike. Due to this uncertainty, there is a rising interest in options on the yen. Traders are buying USD/JPY straddles, which will profit from significant price movements in either direction, set to expire in late September. This is in response to the expected volatility around the BOJ’s next meeting.

Currency Interventions

We should also consider past events, particularly the Ministry of Finance’s currency interventions in 2022 and 2024 when the yen was similarly weak. Because of this, some traders are purchasing inexpensive, out-of-the-money JPY call options. These options act like low-cost lottery tickets, potentially paying off big if the government decides to strengthen the yen. The difference in policies also affects equity derivatives. A weak yen usually increases profits for Japanese exporters. The Nikkei 225 index has risen over 15% so far in 2025. Traders are using Nikkei futures to bet that the BOJ’s ongoing inaction will keep stock prices high in the coming weeks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Japan’s Economy Minister Akazawa has confirmed that the government and the Bank of Japan are working together to achieve a 2% inflation rate to support economic growth. Japan’s preliminary Q2 GDP growth has reached 0.3%, beating expectations of 0.1%, which looks positive for the economy. Although Treasury Secretary Bessent hasn’t called for raising interest rates to combat inflation, the Bank of Japan may consider it. However, the U.S. tariff could decrease Japan’s real GDP by 0.3–0.4%, posing potential challenges.

Exchange Rate Developments

The USD/JPY exchange rate is currently around 147.35. The latest trade agreement between the U.S. and Japan includes the chip-making equipment sector, but there’s been no direct discussion about this with the U.S. Meanwhile, China’s retail sales and factory production in July fell short of expectations, highlighting growth challenges. Home prices in China also dropped both month-on-month and year-on-year, signaling ongoing pressures in the market. Foreign exchange trading carries significant risks. Participants should think carefully about their investment goals and risk tolerance. It’s wise to learn about these risks and seek independent financial advice before trading. The Japanese government and Bank of Japan are committed to reaching a 2% inflation target to boost economic growth. This renewed focus suggests that the era of ultra-loose monetary policy may be ending. It indicates that policy normalization is becoming a reality, not just a distant hope.

Policy Expectations from BOJ

A key point of concern is that the U.S. Treasury believes the Bank of Japan is “behind the curve,” indicating that a rate hike could be on the horizon. This external pressure strengthens the argument for tightening policy sooner rather than later, suggesting a likelihood of unexpected hawkish moves from the central bank. Supporting this notion, Japan’s core CPI for July 2025 has come in at 2.1%, staying above the BOJ’s target for the third consecutive month. This inflation data, along with the unexpected Q2 GDP growth of 0.3%, creates a strong case for the BOJ to raise rates. This marks a significant shift from the deflationary period that lasted for much of the previous two decades. The currency market is reacting to this news, with USD/JPY trending lower at around 147.35. This represents a significant change from the highs and interventions seen in 2022 and 2023. There is also an increase in implied volatility for yen options, indicating that the market is preparing for a big move ahead of the BOJ’s September meeting. This suggests that traders should consider positioning for potential yen strength, such as by purchasing USD/JPY puts. However, it’s essential to keep an eye on potential risks, especially from a U.S. tariff that could reduce Japan’s GDP by up to 0.4%. Coupled with signs of slowing growth in China, including disappointing retail sales and factory output, this could make the BOJ cautious. These global factors could limit the yen’s strength and introduce volatility. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

China’s property market is still facing serious challenges due to high debt levels. In July, new home prices in China fell by 2.8% compared to last year. This is an improvement from June, which saw a 3.2% drop. Month-to-month, prices dropped by 0.3%, similar to June’s decline.

Weakness in China’s Property Sector

China’s new home prices fell by 2.8% year-on-year in July 2025, indicating ongoing problems in the property sector. While this is a small improvement from June’s 3.2% drop, the steady month-to-month decline of 0.3% shows there’s no real recovery in sight. Thus, it’s wise to remain cautious or bearish on assets tied to China. We can see the effects in industrial commodities, as construction is a big part of the demand. Iron ore futures have been struggling, with Dalian contracts failing to maintain the $95 per tonne support level throughout August 2025. Traders might consider buying put options on key mining ETFs or shorting copper futures, expecting demand to stay low in the third quarter. The ongoing property slump is also affecting the Australian dollar since Australia relies heavily on shipping raw materials to China. Recently, the AUD/USD pair dropped below 0.6400, a level we haven’t seen since early 2025. Betting on further weakness in the Aussie dollar seems reasonable, given that the interest rate gap with the US dollar doesn’t provide much support.

Opportunities in Volatility Markets

The ongoing uncertainty is also creating chances in volatility markets. The Hang Seng Mainland Properties Index has lost another 12% so far in 2025, continuing a multi-year downturn. With the chance of sudden government policy changes, purchasing straddles or strangles on broad China ETFs like FXI could let traders profit from significant price swings in either direction. Although the year-on-year price decline has slightly eased, we should be careful not to bet on a major recovery. Stimulus measures from Beijing announced earlier in 2025 have not significantly boosted buyer confidence. Thus, selling call spreads on Chinese real estate stocks listed in Hong Kong may be a wise way to earn premium while betting that any price increases will be limited in the coming weeks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Crude oil markets are paying close attention to an upcoming meeting between US President Donald Trump and Russian President Vladimir Putin in Alaska. A key topic will be a possible ceasefire in Ukraine. The conflict has affected crude oil prices by reducing the amount of Russian oil available to global markets. Currently, Brent oil prices are stable in the Asian morning trading session.

Short Term Volatility

The meeting on Friday could lead to significant short-term volatility for crude oil prices. The outcome is unpredictable, creating a situation where prices could rise or fall dramatically. Implied volatility in Brent options has recently increased, reaching around 35 due to this uncertainty. If the discussions do not result in a ceasefire, we expect the current risk factor to stay in the prices. Russian exports remain limited at about 9.5 million barrels per day, and a report from the IEA in July 2025 shows strong demand growth. This may lead traders to buy call options, which could benefit if geopolitical tensions keep crude prices high or push them higher. On the other hand, if a credible ceasefire is reached, we might see a significant sell-off as the war-related risk factor leaves the market. Recall that Brent prices surged above $120 a barrel when the conflict began in 2022. A resolution could quickly reverse those price increases, favoring traders who hold put options or put spreads, betting on a sharp decline in Brent prices.

Strategies for Capitalizing

With high implied volatility leading up to the meeting, we expect this volatility to decrease once the outcome is revealed. Traders can take advantage of this by selling premium through strategies like short straddles or strangles. This approach profits from the anticipated “volatility crush,” regardless of whether prices move up or down, as long as the movement isn’t too extreme. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Japan’s Economy Minister has announced that the latest GDP data shows a modest economic recovery. However, caution is needed due to potential risks from US trade policies that could affect growth. Rising prices may dampen consumer confidence, possibly leading to lower private spending. The minister’s remarks highlight the need for careful observation amid ongoing economic changes.

Exchange Rate Fluctuations

The USD/JPY exchange rate dropped to about 147.40 after reaching highs above 147.80 before the GDP data was released. Japan’s preliminary Q2 GDP rose by 0.3% from the previous quarter, exceeding the expected growth of 0.1%. This better-than-expected growth gives the Bank of Japan more confidence to move away from its very easy monetary policy. The USD/JPY pair decreased toward 147.40 because a stronger economy raises the likelihood of interest rate increases, which strengthens the yen. Traders should consider any rises in USD/JPY as possible chances to take bearish positions. The minister’s worries about rising prices align with recent data, as Japan’s national core CPI for July 2025 remained steady at 2.8%. This ongoing inflation, combined with economic growth, complicates the central bank’s options. Therefore, buying JPY call options, which would benefit from a stronger yen, may be a good strategy for the coming weeks.

Potential Impact of US Trade Policy

We also need to consider the risks associated with US trade policies, particularly discussions about possible auto tariff reviews in Washington. Such uncertainty could further weaken the yen, pushing USD/JPY back up. Traders might want to use options to manage their risks instead of only trading spot currencies. Looking back, the central bank’s important decision to end its negative interest rate policy in March 2024 set the stage for the current situation. While there is still a significant interest rate gap between the US, with the Fed funds rate at 4.75%, and Japan, the trend now is what counts. The market increasingly expects this gap to narrow before the year’s end. For corporate treasurers in Japanese export-focused companies, this indicates a clear need to enhance hedging strategies. The current exchange rate remains favorable, but conditions could shift against them. Locking in these rates using forward contracts or protecting against downturns with put options on USD/JPY should be a top priority to secure future earnings. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The People’s Bank of China (PBOC) has set today’s USD/CNY reference rate at 7.1371, which is lower than the expected 7.1852. The bank uses a floating exchange rate system, allowing the yuan to move within a +/- 2% range around a central rate. The last closing rate for the yuan was 7.1795. In its monetary operations, the PBOC added 238 billion yuan through 7-day reverse repos at an interest rate of 1.40%.

Net Injection Into The Market

With 122 billion yuan maturing today, the net injection into the market stands at 116 billion yuan. Today’s actions by the central bank send a strong message against weakness in the yuan. The big difference between the official rate and market expectations serves as a warning to those betting against the currency. In the short term, shorting the yuan through futures or swaps is a high-risk move. This step will likely reduce volatility in the USD/CNY pair, making it appealing to sell options. Strategies such as selling out-of-the-money USD/CNY calls could become more profitable since the central bank is aiming to set a ceiling on the exchange rate. Collecting premiums might be better than betting on major price shifts. This firm stance follows a lower-than-expected trade surplus in July 2025 and ongoing foreign investment outflows in the second quarter. The strong reference rate is a clear effort to stabilize the yuan and improve sentiment. It indicates a commitment to stability while other stimulus efforts take effect.

Interventions And Strategies

We’ve seen this approach before, especially during the slowdown in late 2023 when the PBOC consistently set a stronger yuan than expected to counter depreciation. Such interventions can last for weeks or months, which can be tough for speculators. It’s not wise to go against the central bank at this time. The liquidity injection shows the bank is carefully balancing support for the currency with ensuring enough cash flow in the domestic economy. They are not tightening internal policy; rather, they are managing the yuan’s external value. Traders shouldn’t confuse the strong reference rate with a shift to higher domestic interest rates. Over the next few weeks, the safest approach will be to respect the ceiling the PBOC is establishing. We should consider range-bound strategies and be careful with trades that depend on substantial yuan depreciation. Positions should be handled cautiously, as the bank has shown a clear intent to intervene. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Japan’s preliminary GDP for Q2 showed a growth of +0.3% compared to the previous quarter, which is better than the expected +0.1%. This growth marks the fifth straight quarter of GDP increases for Japan. A stronger GDP influences the Bank of Japan’s decisions, which could lead to higher interest rates and a stronger yen. As a result, the yen gained value, with the USD/JPY rate dropping from early highs above 147.80 to about 147.60.

Impact of Stronger GDP

The GDP growth of +0.3% in the second quarter gives the Bank of Japan more reason to adjust its policies. This marks the fifth consecutive quarter of growth and supports a shift away from ultra-easy monetary policies. We expect the market to now factor in a higher chance of another rate hike before the end of the year. This recent data adds to a strong inflation situation. The nationwide core CPI for July reached 2.1%, keeping inflation above the BoJ’s target of 2% for most of the past two years. With ongoing economic growth and consistent inflation pressures, the central bank may find it hard to postpone further actions. For derivative traders, this is a chance to position for a stronger yen. We recall the BoJ’s significant shift away from negative rates in March 2024, showing their willingness to act. After seeing USD/JPY reaching as high as 160 last year, a major correction could happen if the popular carry trade starts to unwind.

Currency Volatility Ahead

In the upcoming weeks, we expect more currency fluctuations as we approach the September BoJ meeting. Traders should think about buying USD/JPY put options or creating put spreads to prepare for a potential decrease with limited risk. A break below 148.00 is an important technical signal, and we will be monitoring for a possible test of the 145 level. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as the renminbi (RMB), against a basket of currencies, mainly the US dollar. The expected USD/CNY reference rate is 7.1852, with the announcement scheduled for around 0115 GMT. The PBOC uses a managed floating exchange rate system, which allows the yuan’s value to change within a certain range around a central reference point. This trading band is currently +/- 2%, meaning the yuan can rise or fall by up to 2% from the midpoint in a single trading day.

Factors Influencing The Yuan

When determining the daily midpoint, the PBOC considers market supply and demand, economic indicators, and global currency market trends. If the yuan approaches its trading band limit or shows excessive volatility, the PBOC may step in to stabilize the currency. This involves buying or selling the yuan to maintain a controlled value adjustment. The PBOC aims to slow the yuan’s depreciation with its daily reference rate. The anticipated fix of 7.1852 is stronger than what the market has been showing offshore, with USD/CNH testing the 7.21 level. This indicates the PBOC is resisting market pressure and will not let the yuan decline rapidly. This managed stability occurs during a time of mixed economic signals. China’s July 2025 industrial production growth was lower than expected at 3.5% year-over-year, while recent US Federal Reserve minutes suggest that interest rates will remain high. These factors are leading to a market preference for a weaker yuan compared to a stronger dollar. For derivative traders, this situation creates a classic range-bound environment, influenced by policy. Strategies that benefit from low volatility may be wise, as the PBOC appears to be limiting the daily gains for USD/CNY. Selling options could be a favorable approach, as the PBOC’s actions are likely to keep the pair within a tight range for now.

Past Strategies And Future Risks

In 2023, we saw a similar situation when the PBOC defended the yuan against significant depreciation. The central bank consistently used its daily fix to stabilize the currency, even amid economic signals suggesting further weakness. This strategy seems to be a repeat of their previous successful efforts to prevent disordered capital outflows. The main risk in the coming weeks is deteriorating economic data from China that could compel the PBOC to allow a larger, one-time devaluation. We should watch for any breach of crucial psychological levels, such as the 7.30 mark, which has been a significant indicator in the past. A move beyond this level would indicate a major policy shift, changing from a range-trading strategy to a more directional approach. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Japan’s GDP for the second quarter surprised many with better-than-expected results. Business spending and net exports helped offset a drop in inventories. Preliminary data indicates a quarterly growth of 0.3%, surpassing the expected 0.1%. The annualized growth rate was 1.0%, which exceeded the forecast of 0.4% and improved from a previous decline of –0.2%. Nominal growth landed at 1.3%, slightly below the 1.4% estimate but better than the previous 0.9%. The GDP deflator decreased to 3.0%, lower than the projected 3.2%, while private consumption grew by 0.2%, hitting the 0.1% target.

Business Spending and Net Exports Help Growth

Notably, business spending rose by 1.3%, higher than the predicted 0.7% and above the earlier 1.1%. However, inventory’s impact on GDP was –0.3%, more negative than the expected –0.2%. In contrast, net exports contributed positively at 0.3%, exceeding the forecast of 0.1%. This marks the fifth straight quarter of GDP growth, with consumption and capital expenditures rising during this time. Following this data release, JGB futures and USD/JPY saw slight declines. The strong Q2 GDP results could spark expectations for further policy normalization from the Bank of Japan. With five quarters of growth behind them, pressure mounts on the central bank to consider another rate adjustment following the small hike in March 2025. We should anticipate increased volatility in Japanese Government Bond (JGB) futures as the market reacts to this news.

Trading Opportunities Amid Market Reactions

For currency traders, the initial dip in USD/JPY to around 157.80 reflects the positive domestic data, but this may not last long. The significant interest rate difference with the United States, where the Fed is maintaining rates near 4.75%, remains important. This suggests that any short-term strength of the yen might just be a temporary response, making short-term call options on USD/JPY a strategic choice to hedge against a rebound. The data provides a positive outlook for Japanese equities, as the 1.3% increase in business spending indicates strong corporate confidence. This solid capital expenditure is crucial for corporate earnings and should give a good boost to the Nikkei 225 index. Traders might consider buying Nikkei call options to benefit from potential gains in the upcoming weeks. Nevertheless, the Bank of Japan will also take note of the GDP deflator at 3.0%, which was slightly below expectations, and the latest national core CPI for July 2025, which eased to 2.8%. This mixed inflation picture gives the central bank reason to be cautious and possibly delay major policy changes. This uncertainty may result in choppy markets, making volatility-based strategies like straddles on the Nikkei a viable option. It’s important to remember the Bank of Japan’s historical hesitance to tighten policy too quickly, reflecting on the policy changes of the past two decades. They will likely want to see consistent wage growth and stable inflation figures before committing to a more aggressive rate hike approach. Thus, while today’s data is encouraging, we should expect the central bank to adopt a cautious strategy as autumn approaches. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now