Discussion around the future direction of United States monetary policy has intensified following Donald Trump’s nomination of Kevin Warsh to lead the Federal Reserve, subject to vetting and confirmation by the United States Senate.

While the confirmation has yet to conclude, the nomination itself has already begun to influence market expectations.

Warsh represents a markedly different monetary philosophy from the current Federal Reserve leadership, and his prospective appointment carries meaningful implications for the US dollar, Bitcoin, and global liquidity conditions.

The key issue is not whether money printing will occur. The debate centres on timing, scale, and mechanism.

Markets are attempting to determine whether the next policy regime would continue smoothing every downturn with incremental liquidity or tolerate stress and volatility before deploying decisive intervention. That distinction alone reshapes asset pricing across currencies, bonds, equities, and digital assets.

Markets Focal Point On Kevin Warsh

Kevin Warsh served as a Federal Reserve Governor from 2006 to 2011, placing him directly inside the institution during the Global Financial Crisis. Since leaving the Fed, his commentary has been unusually consistent and direct.

Warsh has repeatedly argued that financial markets have become too reliant on central bank support and that injecting liquidity too early prevents prices from adjusting naturally, while encouraging investors to take excessive risks because they expect to be rescued.

Warsh does not oppose lower interest rates. In fact, he has acknowledged that lower rates are structurally necessary given high debt levels and housing affordability pressures. What he opposes is continuous money creation.

In his framework, markets should be allowed to fall, leverage should be exposed, and only then should policymakers intervene to prevent systemic collapse rather than protect asset prices.

This approach stands in contrast to the policy style associated with Jerome Powell, under whom the Federal Reserve has favoured gradual easing, repeated balance sheet expansion, and rapid deployment of liquidity facilities to dampen volatility.

Both approaches ultimately result in monetary expansion. The difference lies in how pain is distributed. One spreads support consistently through a downturn. The other withholds support until stress forces repricing, then intervenes forcefully.

For Bitcoin and crypto markets, this distinction is critical. Crypto assets are highly sensitive to liquidity conditions. A period of deliberate tightening without immediate intervention is negative for Bitcoin in the short term, as liquidity withdrawal compresses speculative positioning and reduces marginal demand.

For gold and silver, timing is less important than certainty. Whether money printing happens early or late, the long-term erosion of purchasing power remains inevitable. The US dollar may strengthen temporarily during periods of liquidity restraint, but once large-scale printing resumes, real purchasing power erosion follows.

This raises an important political question. If Trump prioritises growth, housing recovery, and domestic manufacturing, why would he favour a figure perceived as liquidity restrictive?

The answer likely lies in the gap between stated philosophy and crisis behaviour. Warsh’s public posture emphasises discipline, but his record during 2008 shows a willingness to support aggressive intervention when systemic stability is threatened.

Credibility calms markets, but policy intentions often change once real pressure hits the system.

What A Warsh Fed Would Likely Do

If Warsh were to shape monetary policy, the most significant shift would likely be a move away from permanent quantitative easing and toward balance sheet neutral liquidity tools.

Ongoing bond purchases would be curtailed, not because liquidity is unnecessary, but because continuous Federal Reserve balance sheet expansion distorts incentives and crowds out private balance sheets.

Instead, the Standing Repo Facility would play a central role. This facility allows banks to borrow cash overnight against high-quality collateral. By removing effective caps on this facility, banks would gain access to emergency liquidity without the Federal Reserve directly injecting money into markets.

This distinction is important. Quantitative easing functions as a stimulant that encourages risk-taking and asset inflation. The repo facility functions as oxygen that is invisible until necessary and deployed only when stress emerges.

Under this framework, banks use their own balance sheets to distribute liquidity. The Federal Reserve shrinks in footprint while the financial system remains operational. Banks earn spreads, Wall Street benefits, and liquidity flows without constant headline money printing.

This framework, however, depends critically on changes to the Supplementary Leverage Ratio. The SLR was introduced after the 2008 crisis as a blunt but effective safeguard.

It requires banks to hold capital against the total size of their balance sheet regardless of asset composition. The rule exists because pre crisis models underestimated risk by relying on ratings that ultimately failed.

The Structural Risk Behind The Strategy

The current problem is that the SLR treats US Treasuries as capital-intensive assets. Since 2020, the US government has issued trillions of dollars in new debt. Banks are the primary buyers of this debt, yet under SLR constraints, every additional Treasury purchase requires raising expensive capital.

Proposed changes to the Supplementary Leverage Ratio could allow banks and their subsidiaries to hold more Treasury securities.

Here's what that means in practice: https://t.co/UA1KnYhJNI

— ING Economics (@ING_Economics) August 16, 2025

As a result, banks have gradually reduced their participation in Treasury absorption, contributing to fragility in the bond market.

Both Warsh and Scott Bessent have criticised this framework. Their argument is that Treasuries are the safest assets in the financial system and should not constrain balance sheets in the same way as risky loans. Removing or relaxing SLR would free bank capacity, restore Treasury demand, and stabilise market plumbing.

This approach carries risk. Removing leverage constraints fixes liquidity but removes the safety belt. Banks could accumulate government debt using high leverage. If inflation resurges and bond prices fall, bank capital could erode rapidly, threatening systemic stability not because assets are toxic, but because leverage is unconstrained.

The Political And Economic Theory

From a political perspective, the strategy may still be rational.

President Trump said he is ordering his representatives to buy $200 billion in mortgage bonds to bring down housing costs https://t.co/PCiCmNvkPV

— Reuters (@Reuters) January 9, 2026

Trump cannot sustain an economic narrative if mortgage rates remain elevated. Housing affordability is more politically powerful than equity market performance. Sacrificing stock market momentum to restore bond market pricing discipline could ultimately lower long-term yields and mortgage rates.

Ending quantitative easing suppresses equities but restores price discovery in the bond market. If inflation expectations decline, mortgage rates eventually follow. This trade-off prioritises long-term economic stability over short-term asset inflation.

A Possible 2026 Outlook

Looking toward 2026, a two-phase scenario emerges.

In the first phase, liquidity discipline dominates if Warsh executes as outlined. Quantitative tightening or restrained liquidity provision strengthens the US dollar, pressures exports, and triggers a correction in risk assets, potentially concentrated around the middle of the year.

In the second phase, the narrative shifts. A rejection of central bank digital currency frameworks combined with a formal acknowledgement of Bitcoin’s role reframes crypto not as a speculative asset but as part of the financial architecture.

Under this framework, Bitcoin benefits not from excess liquidity but from institutional legitimacy and strategic relevance.

Conclusion

Ultimately, the outcome depends less on ideology than on execution. One possibility is that Trump genuinely risks Wall Street to revive Main Street, betting on artificial intelligence-driven productivity, housing recovery, and manufacturing through lower rates.

Another possibility is more tactical. Warsh is appointed for credibility to calm bond markets. Rate cuts are demanded. If markets break and pressure mounts, Warsh, who has supported large-scale emergency intervention before, reverses course and prints aggressively.

In both scenarios, the conclusion converges. Short-term liquidity discipline may strengthen the US dollar and suppress Bitcoin. Long-term monetary reality still favours scarce assets. The path may be volatile, but the destination remains unchanged.

China’s Consumer Price Index (CPI) rose 1.3% year-on-year in February. This was above the forecast of 0.8%. The reading shows inflation was higher than expected for the month. No further breakdown was provided in the update.

China Inflation Signals A Demand Revival

This higher-than-expected inflation figure suggests consumer demand in China is reviving more strongly than we anticipated. After a prolonged period of deflationary pressure throughout 2025, this is a significant shift. We are now focused on whether the People’s Bank of China will alter its accommodative stance in the coming months. The data provides a tailwind for the yuan, as monetary policy may diverge less from Western central banks than previously thought. The offshore yuan (CNH) has already strengthened past the 7.18 per dollar mark, a key level it failed to break during the brief recovery attempt late last year. We believe traders should consider buying short-dated CNH call options to bet on further appreciation. This is also a clear bullish signal for industrial commodities that are dependent on Chinese demand. Copper prices on the London Metal Exchange have already risen 4% this month, hitting an 18-month high of over $9,950 per tonne. We see this trend continuing, making call options on copper, iron ore, and even crude oil attractive plays on a rebounding Chinese economy. For equity indices like the FTSE China A50, the path forward is less certain and suggests volatility. While economic strength is good for corporate earnings, the prospect of tighter credit conditions could cap market upside, similar to what we observed in the sharp downturn of early 2025. This environment is ideal for purchasing straddles on major Chinese market ETFs to profit from large price swings in either direction.

Positioning For Currencies Commodities And Equities

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On Monday, the People’s Bank of China (PBoC) set the USD/CNY central rate at 6.9158, compared with 6.9025 the previous day. The PBoC’s monetary policy aims include maintaining price stability, including exchange rate stability, and supporting economic growth. It also works on financial reforms such as opening and developing China’s financial markets.

Governance And Policy Direction

The PBoC is owned by the state of the People’s Republic of China and is not an autonomous body. The Chinese Communist Party Committee Secretary, nominated by the Chairman of the State Council, influences the bank’s management and direction, and Pan Gongsheng currently holds both that post and the governorship. The PBoC uses multiple policy tools, including a seven-day reverse repo rate, the Medium-term Lending Facility, foreign exchange intervention, and the reserve requirement ratio. China’s benchmark interest rate is the Loan Prime Rate, which affects loan and mortgage costs and savings rates, and can also affect the renminbi’s exchange rate. China has 19 private banks, described as a small part of the financial system. The largest are digital lenders WeBank and MYbank, and in 2014 China allowed fully privately funded domestic lenders to operate in the state-led sector. Given the People’s Bank of China’s decision to set the USD/CNY reference rate at 6.9158, it signals a clear tolerance for a weaker Yuan. This move is likely a response to China’s export growth for January and February 2026, which came in at a disappointing 1.5% year-over-year, well below forecasts. We see this as a subtle policy lever to boost economic activity by making Chinese goods cheaper abroad.

Trading Implications For Usd Cny

For derivative traders, this creates an opportunity to position for further, managed depreciation of the Yuan in the coming weeks. A straightforward strategy would be to purchase USD/CNY call options with strike prices approaching the 7.00 psychological level. This approach allows for participation in the upside if the Yuan continues to weaken while limiting downside risk to the premium paid. This policy action contrasts sharply with the situation in the United States, where the latest CPI data from February 2026 showed inflation remaining sticky at 2.8%. This data makes it unlikely the Federal Reserve will cut rates soon, providing underlying strength to the US dollar. This growing policy divergence between the two nations reinforces the case for a stronger USD/CNY pair, a trend that was less clear in the final quarter of 2025. However, we must remember the central bank’s emphasis on stability, as seen during the periods of rapid depreciation in mid-2025 which prompted state bank intervention. A sudden, sharp decline in the Yuan is not the goal, so traders should hedge against abrupt policy reversals. Using options with defined risk is therefore more prudent than holding highly leveraged short positions in CNH futures. Create your live VT Markets account and start trading now.

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EUR/USD opened the week with a bearish gap and slid to the 1.1520–1.1515 area, marking a fresh low since November 2025. Market dynamics still suggest the risks remain skewed toward further downside. US Dollar demand strengthened as markets looked past a weak US Nonfarm Payrolls report and refocused on the Middle East conflict. The US Israel campaign against Iran entered its tenth day on Monday, pressuring global equities.

Oil Shock Fuels Dollar Bid

Crude Oil moved above $100 on supply disruption fears tied to the Strait of Hormuz. Oil has gained more than 25% since the conflict began, reinforcing inflation concerns. Those inflation worries have pushed expectations for the next meaningful shift in Federal Reserve policy further out. US Treasury yields rose in response, adding support to the US Dollar. Europe’s dependence on imported energy leaves the euro particularly vulnerable if crude and natural gas prices continue to climb. Traders are now focused on this week’s US inflation data for signals on the Fed rate cut trajectory, while simultaneously tracking geopolitical headlines and oil. Given the flight to safety and the persistence of geopolitical stress, US Dollar strength looks like a trend that can endure for the coming weeks. The Cboe Volatility Index move above 25 reflects a level of market anxiety not seen consistently since the banking turmoil in 2025, favoring positioning for a stronger dollar alongside elevated volatility.

Derivatives Views For Eurusd

Positioning for additional EUR/USD downside via derivatives remains the most direct expression of this outlook. The US 10 year yield pushing above 4.5% signals markets are increasingly pricing out near term Fed rate cuts that were expected only last month, making EUR/USD put options targeting 1.1400 or 1.1350 appear reasonable. Europe’s heavy reliance on energy imports, still near 60% of consumption, creates a meaningful vulnerability if oil holds above $100 per barrel. That would represent a material shock to growth and sentiment and could reinforce euro weakness, with upcoming releases such as Germany industrial production potentially reflecting that strain. The sharp oil spike echoes the early 2022 shock that helped ignite a global inflation wave. In this scenario, the inflation impulse supports a relatively more hawkish Fed while the ECB contends with weaker growth risks, a divergence that can act as a strong catalyst for a lower EUR/USD. With implied volatility rising, debit put spreads may offer a more capital efficient alternative to outright puts by defining risk while preserving downside exposure if EUR/USD drifts back toward late 2025 lows. The upcoming US inflation report is the key event risk, where an upside surprise could intensify the downward move. Create your live VT Markets account and start trading now.

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GBP/USD fell towards 1.3300 in early Asian trading on Monday, as the US Dollar strengthened amid rising conflict in the Middle East. Markets are also looking ahead to the US February Consumer Price Index (CPI) report due on Wednesday. CNBC reported that Iran appointed Mojtaba Khamenei as supreme leader, just over a week after Ayatollah Ali Khamenei was killed in US-Israeli strikes. US President Donald Trump said he would seek to influence Iran’s next leader and warned that a choice made without Washington’s approval “is not going to last long.”

Geopolitical Risk Lifts Dollar Demand

The extended conflict has supported demand for the US Dollar and weighed on the Pound. The United States is described as a net energy exporter, which can support the currency during periods of geopolitical stress. US jobs data added a counterweight to Dollar gains and could limit further falls in GBP/USD. Nonfarm Payrolls fell by 92,000 in February, versus expectations for a rise of 59,000, while January was revised to 126,000. The Unemployment Rate rose to 4.4% over the same period. The report also noted job losses across key areas. Given the tension in the Middle East, the US Dollar is acting as a classic safe-haven asset, putting pressure on GBP/USD. This is happening despite the very weak US jobs report for February that we just saw, which showed a surprising loss of 92,000 jobs. This creates a conflicting narrative, suggesting a period of high volatility is likely in the coming weeks. The upcoming US Consumer Price Index report is the key event that could break this deadlock. Traders should anticipate a significant price swing after its release, as a high inflation number would reinforce dollar strength while a low number would amplify fears of an economic slowdown. We saw similar dynamics throughout 2022, when CPI data regularly caused currency pairs to move more than 1.5% in a single session.

Historical Patterns In Safe Haven Flows

The dollar’s strength during geopolitical crises is a well-established pattern that should not be underestimated. For instance, at the onset of the conflict in Ukraine in early 2022, the Dollar Index (DXY) rallied from around 96 to over 103 in the following months as capital fled to safety. This historical precedent supports the view that as long as the Middle East conflict remains a primary concern, the dollar will likely remain strong. However, the poor Nonfarm Payrolls data presents a serious challenge to the dollar’s strength. We must remember that during periods of extreme fear, such as the initial COVID-19 shock in March 2020, the dollar rallied hard even as US economic data collapsed. This suggests that the current geopolitical fears could continue to outweigh domestic economic weakness in the immediate future. Therefore, buying options to position for increased volatility is a prudent strategy. Purchasing out-of-the-money put options on GBP/USD can serve as effective insurance against a sharp decline if the geopolitical situation worsens or if US inflation remains stubbornly high. These positions can be structured to cover the next several weeks, offering a cost-effective way to navigate the current uncertainty. Create your live VT Markets account and start trading now.

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AUD/USD traded near 0.6960 in Asian hours on Monday, starting the week lower as the US Dollar rose on safe-haven demand linked to escalating Middle East tensions. Markets are also watching China’s February CPI later in the day, as it can affect the Australian Dollar through trade links. The Iran war has moved into its second week with no resolution reported. Mojtaba Khamenei was named Iran’s new supreme leader just over a week after Ayatollah Ali Khamenei was killed in US-Israeli strikes, and US President Donald Trump said the appointment was “unacceptable”.

Dollar Strength And Oil Surge

The US Dollar Index (DXY) climbed to near three-month highs and traded around 99.60 at the time of writing. The US Dollar also found support as WTI crude oil rose above $100.00 per barrel on fears the conflict could disrupt energy supplies. Traders also adjusted inflation expectations after hostilities began last week, increasing expectations that the Federal Reserve could delay interest rate cuts. In Australia, rate expectations remain debated, while the ASX 30-Day Interbank Cash Rate Futures contract for March 2026 traded at 96.125 on March 6, implying a 22% probability of a rise to 4.10% at the RBA’s next Board meeting in March. When we look back at the start of the Iran war in early 2025, the market reaction was a classic flight to safety. The US Dollar Index (DXY) surged to a three-month high near 99.60 as traders sought refuge in the greenback. This initial shock sent AUD/USD tumbling towards 0.6960, a move driven purely by geopolitical fear. That safe-haven demand for the US dollar has since faded considerably as the conflict settled into a protracted stalemate. We’ve seen the DXY ease back towards the 97.50 level, with the market’s focus shifting to economic fundamentals. Recent US inflation data from January 2026 showed headline CPI cooling to 2.8%, reinforcing the view that the Federal Reserve will begin its rate-cutting cycle by mid-year.

Oil Prices And Policy Outlook

The spike in WTI crude oil above $100 per barrel was also short-lived, mirroring historical patterns where initial supply fears give way to market adjustments. After peaking in the second quarter of 2025, prices have stabilized and now trade in a more manageable $85-$90 range. This has eased the inflationary pressures that initially caused the Fed to delay its pivot. Meanwhile, the Reserve Bank of Australia avoided hiking rates through the 2025 turmoil, concerned that global uncertainty would hurt domestic growth more than oil prices would fuel inflation. With the initial shock now passed, the Australian dollar is benefiting from a rebound in its key trading partner. China’s Caixin Manufacturing PMI for February 2026 recently registered a solid 51.2, indicating a healthy expansion that supports demand for Australian exports. Given the weakening US dollar and strengthening Australian fundamentals, traders should consider positioning for further AUD/USD strength in the coming weeks. Buying AUD/USD call options or establishing bull call spreads could be effective ways to gain upside exposure. Implied volatility is much lower now than during the peak of the conflict in 2025, making these option strategies more affordable. Create your live VT Markets account and start trading now.

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Israel’s Defence Minister, Israel Katz, warned Lebanon’s government on Saturday to disarm Hezbollah or “pay a very heavy price”. He said Israel has no territorial claims against Lebanon and would not accept renewed fire from Lebanese territory towards Israel. Katz said Israel was issuing a warning for Lebanon to act before Israel “act[s] even more”. The remarks outlined Israel’s position on cross-border attacks originating from Lebanon.

Regional Tensions And Market Sensitivity

Hezbollah said on Sunday that it attacked a naval base in Haifa. It also said it launched a swarm of drones at the city of Nahariya, alongside other attacks on northern Israel. At the time of writing, West Texas Intermediate (WTI) was up 15.62% on the day at $102.95. We remember the situation from last year when tensions flared up between Israel and Hezbollah. The warnings were direct, threatening a very heavy price if certain actions were not taken. This created a period of extreme uncertainty across global markets. At that time, we saw West Texas Intermediate crude oil spike over 15% in a single day to more than $102 a barrel. That kind of rapid price movement shows how sensitive energy markets are to conflict in the region. It served as a clear reminder of the geopolitical risk premium in oil. Today, with WTI crude hovering around $88 a barrel, we are seeing similar rhetoric emerging. Recent EIA data shows U.S. crude inventories have fallen by 3.2 million barrels, tighter than expected. This leaves the market with very little cushion for any new supply disruptions from the Middle East.

Strategy Ideas For Managing Volatility

Given this backdrop, we should be looking at increased volatility in the energy sector. Implied volatility on oil options is rising, making long call positions on ETFs like the USO a viable strategy to capture potential upside. The CBOE Crude Oil Volatility Index (OVX) has already climbed 8% this past week, signaling market nervousness. For a more defined-risk approach, we can consider bull call spreads to lower the entry cost while still benefiting from a price surge. We are also watching the front-month futures curve, which is showing signs of deepening backwardation, suggesting immediate supply concerns. This structure favors holding long positions closer to the present. This isn’t just about oil; we should also look at options on defense sector ETFs, as they typically strengthen during periods of conflict. Shipping lane disruptions could also impact global logistics companies, creating opportunities in put options on relevant transport indexes. It is critical to monitor these interconnected markets for secondary effects. Create your live VT Markets account and start trading now.

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US President Donald Trump said a rise in oil prices is a “very small price to pay” to defeat Iran and support world safety and peace, the Telegraph reported on Sunday. He wrote on Truth Social that prices would fall rapidly once what he called the “destruction of the Iran nuclear threat” is over. He also wrote: “ONLY FOOLS WOULD THINK DIFFERENTLY! President DJT,” in his post. He described the move in oil as a short-term effect linked to the conflict.

Oil Price Reaction And Market Context

At the time of writing, West Texas Intermediate (WTI) was up 16.42% on the day at $103.07. This reflects an oil price jump during the reported Iran war context. Looking back at the spike to over $103 per barrel in March of 2025, we see the initial market shock from the conflict. The subsequent price drop was not as rapid as predicted, with WTI now trading stubbornly around $95. This reflects persistent geopolitical risk in the Strait of Hormuz, which still sees intermittent shipping disruptions impacting about 20% of global petroleum consumption. We are now dealing with the consequences of that prolonged energy price pressure. February’s Consumer Price Index (CPI) report showed inflation holding at a stubborn 4.5%, well above the Federal Reserve’s target. Consequently, we see the Fed funds rate holding at a two-decade high of 6.0%, with little indication of rate cuts this year. For us, this means implied volatility remains our primary focus, especially in the energy sector. The CBOE Crude Oil Volatility Index (OVX) continues to trade above 40, a historically elevated level, making the selling of premium through strategies like iron condors on crude futures attractive for range-bound speculation. However, long-dated call options are being bought as a hedge against any further supply shocks.

Macro Outlook And Trading Focus

This high-rate environment is now visibly slowing the economy, with Q4 2025 GDP growth coming in at just 0.2%. We are watching for signs of demand destruction, which could create a ceiling for crude prices despite the supply-side risks. The key tension for the coming weeks will be this conflict between ongoing geopolitical threats and a potentially recessionary economic backdrop. Create your live VT Markets account and start trading now.

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Japan’s non-seasonally adjusted current account recorded a surplus of ¥941.6bn in January. This was below the expected ¥960bn. The result shows the current account surplus was ¥18.4bn lower than the forecast. No further breakdown was provided in the update.

Implications For The Japanese Yen

The current account surplus coming in lower than expected points toward a potential weakening of the Japanese yen. This is because it signals less foreign currency is being converted into yen from trade and investment flows than the market anticipated. This reinforces the view that yen weakness may persist in the near term. This data gives the Bank of Japan a reason to remain cautious about tightening monetary policy. We have seen Japanese inflation hover around 2.4% in late 2025, but this weak external number allows the central bank to delay any further interest rate hikes. Derivative markets should now reduce the odds of a BoJ policy change in the second quarter of 2026. For currency traders, this strengthens the case for buying call options on USD/JPY. The pair has been consolidating near the 158 level for several weeks, and this news could provide the catalyst for a move towards the 160-162 range. Volatility may pick up, so structuring trades with defined risk is advisable. A weaker yen is typically supportive for Japan’s export-heavy Nikkei 225 index. The earnings of major companies benefit from a favorable currency translation when their overseas profits are brought home. We could position for this by acquiring call options on the Nikkei, anticipating that the index will climb from its current level around 42,500.

Key Risk To The Bullish View

However, we must consider the reason for the miss. Reviewing the trade data from late 2025, we saw a noticeable slowdown in exports to both China and Europe, reflecting weaker global demand. If the current account miss is due to a global slowdown rather than just domestic factors, the boost from a weaker yen could be offset by falling export volumes. Create your live VT Markets account and start trading now.

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Japan’s trade balance on a balance of payments (BOP) basis rose to ¥3,145bn in January. This compares with ¥2,697.1bn in the previous period. The latest figure shows an increase of ¥447.9bn from the prior level. The data points to a higher trade surplus than before.

Implications For The Japanese Yen

The January 2026 trade surplus figure of ¥3.145 trillion is a notable increase, signaling a significant inflow of foreign currency. This fundamentally increases demand for the Japanese Yen, suggesting a potential for JPY appreciation. We should position for a stronger yen against major currencies in the coming weeks. Given this outlook, we can look at buying put options on the USD/JPY pair to profit from a falling exchange rate. The current strength is also supported by recent data showing Japan’s February core inflation holding at 2.1%, keeping it above the Bank of Japan’s target for over a year and a half. This reduces the likelihood of policy measures that would weaken the currency. We must also consider the inverse effect on Japanese equities, as a stronger yen hurts the profitability of the nation’s large exporters. Buying put options on the Nikkei 225 index or on specific exporter ETFs would be a prudent strategy. We saw this exact dynamic play out in the last quarter of 2025, when a period of yen strengthening caused the auto sector to underperform the broader market by nearly 4%.

Tradeoffs For Japanese Equities

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