Japan’s Ministry of Finance held a special auction, selling 0.6 trillion yen in Japanese Government Bonds (JGBs). This auction is not about creating new bonds; instead, it’s about reissuing bonds that already exist to increase supply for bonds in high demand. Enhanced-liquidity auctions are designed to improve trading conditions and stabilize yields across different bond maturities. By reissuing bonds with the same maturity, coupon, and terms, the Ministry boosts the amount available, which makes it easier to trade these bonds. This helps create smoother transactions and more stable financial conditions for traders.

Increasing Supply of JGBs

The move to increase the supply of specific JGBs is a strategy to manage rising yields and keep the market running smoothly. We can expect yields for the auctioned bonds to rise since more supply typically leads to lower prices. The 10-year JGB yield has already surpassed 1.1% this quarter, reaching its highest level since 2014. This auction highlights the government’s commitment to stability rather than just reducing rates. For derivative traders, the main point is that the government aims to lower volatility by improving liquidity. This may lead to a drop in implied volatility on JGB futures for the reopened bonds in the coming weeks. Traders could look to sell volatility using strategies such as short straddles, betting that these auctions will help keep yields stable within a certain range. The currency market will also be affected; slightly higher and more stable JGB yields could support the value of the Japanese yen. The yen has faced challenges this year, recently dropping below 155 against the dollar. Any policy that makes yen-denominated assets more appealing is significant. We should be on the lookout for a potential slowdown in the rise of USD/JPY, which could create opportunities for yen call options.

Key Tool in Post-Yield Curve Control Era

This enhanced-liquidity auction is a subtle yet important strategy in the post-Yield Curve Control era that began in 2024. With Japan’s core inflation rate for August reported at 2.3%, authorities are trying to normalize policy without causing disorder in the bond market like we’ve seen during previous global tightening periods. This involves carefully managing the transition, one auction at a time. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

China’s leaders are worried that loose monetary policies could lead to an overheated stock market. This concern might cause the People’s Bank of China (PBOC) to hold off on any new easing measures. They are especially cautious after the 2015 stock market crash, which wiped out $6.8 trillion in value. While some economists expect a small rate cut by the end of the year, both Citigroup and Nomura believe the PBOC will likely keep interest rates steady and avoid changing reserve requirements to maintain market stability.

Impact on the RMB and Equity Rally

The PBOC’s decision can lead to a stronger RMB in the short term. Postponing easing measures might slow down the stock market rally and influence foreign exchange (FX) rates and demand for commodities in Asia. China’s leaders are increasingly worried that loose monetary policy could create another stock market bubble. They want to avoid a repeat of the 2015 crash. This indicates that the People’s Bank of China may not follow through with expected cuts to interest rates or reserve requirements. Since the Shanghai Composite index has already increased by over 18% since May 2025, the likelihood of a pullback due to policy changes is growing. For derivative traders, this means we should think about buying put options on the CSI 300 index to protect against possible market changes. The rising prices of these options this past week show that others are also looking for ways to guard against losses. This potential policy change is likely to boost the yuan in the short term since less easing typically strengthens the currency. We are considering positions that would benefit from a lower USD/CNH exchange rate, like purchasing put options on this currency pair. The implied volatility for USD/CNH options has risen to 5.2%, suggesting the market expects some movement.

Commodities and Regional Currencies

If China delays stimulus, we can expect effects on commodities. Since China is the largest global consumer, less liquidity may reduce demand for industrial metals like copper and iron ore. We remember that similar warnings from the PBOC in 2021 led to a major drop in copper prices. This situation also affects regional currencies that depend on China’s growth, especially the Australian dollar. As China is the biggest buyer of Australian iron ore, any slowdown in China could negatively affect sentiment towards the Aussie dollar. Therefore, we are considering buying put options on the AUD/USD pair as a way to trade on Chinese economic sentiment. 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) decides the daily midpoint for the yuan, also called the renminbi (RMB). This is done under a managed floating exchange rate system, allowing the yuan to change within a +/- 2% range around a set reference rate. Currently, the yuan is valued at 7.1029, its strongest since November 6, up from a previous close of 7.1324. The PBOC injected 191.5 billion yuan through 7-day reverse repos at a rate of 1.40%, resulting in a net drain of 8.8 billion yuan.

Enhancing Yuan’s Internationalisation

China is looking into an offshore RMB stablecoin to boost the yuan’s international use. Furthermore, China will reopen its bond market to Russian energy companies, showing stronger ties between the two nations. Important events are coming up, including the release of Chinese trade data on Monday, September 8, 2025, as part of the Asian economic calendar. The PBOC’s strong yuan fixing at 7.1029 indicates they don’t want further weakness and may guide the currency to strengthen. This is a significant move, especially as it’s the yuan’s strongest point since November 2024. Traders should see this as a potential shift from the defensive measures used in the first half of 2025. This newfound confidence likely comes from improving domestic data. The Caixin Manufacturing PMI for August 2025 exceeded expectations at 51.2, marking three months of growth. A stronger economy allows officials to let the currency rise without harming growth, especially since the US Federal Reserve has hinted at pausing its tightening measures. The slight liquidity drain from reverse repos suggests they are satisfied with current financial conditions and are focused on the exchange rate.

Investment Strategy and Market Implications

Given this clear signal, we suggest buying call options on the yuan or put options on the USD/CNH pair in the coming weeks. This strategy allows you to benefit from potential yuan appreciation while limiting risk. Historical volatility charts from late 2024 show that current implied volatility is relatively low, making option premiums more appealing. Today’s immediate test for this outlook comes with the release of China’s August trade data. If exports exceed the consensus forecast of 3.5% year-on-year growth, it would support the PBOC’s actions and possibly lead to further gains for the yuan. Conversely, a weak report could undermine this optimistic view and lead to a sharp reversal. Looking back, this decisive fixing contrasts sharply with the fight against depreciation seen throughout 2024, indicating a shift in policy. Long-term plans like an offshore RMB stablecoin and opening bond markets to Russian firms reflect a desire for a stronger, more globally recognized currency. These elements support maintaining a core bullish stance on the yuan through derivatives. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Goldman Sachs is keeping its Brent and WTI price forecasts for 2025 the same. This decision comes as OPEC+ plans to gradually reverse their cuts of 1.65 million barrels per day (mb/d), while OECD commercial stocks remain low. The firm expects average prices in 2026 to be $56 for Brent and $52 for WTI. The risks to the price forecast for 2025-2026 are seen as balanced but slightly tilted towards a price increase. Goldman Sachs believes that by 2026, supply growth in the Americas will likely surpass Russian supply drops and increased global demand, leading to a larger expected oil surplus of 1.9 mb/d, up from a previous estimate of 1.7 mb/d.

OPEC Measures and Market Stocks

Goldman Sachs also thinks there is a chance OPEC+ could fully reverse the 1.65 mb/d cuts. They anticipate that if OECD commercial stocks increase noticeably by late 2025, OPEC+ may pause any quota increases starting January 2026. The outlook maintains steady prices for Brent and WTI for 2025, similar to current forward contracts. This perspective relies on the idea that OPEC+ is beginning to unwind their cuts because OECD stocks are low. The key point in the weeks ahead is managing short-term tightness against the potential for a surplus later. Recent EIA data supports this view, showing an unexpected decrease in crude oil of 3.1 million barrels, contrary to expectations of a slight increase. Additionally, the latest CFTC report from September 2nd indicates that money managers have increased their net long positions in WTI futures and options, reflecting a stronger focus on the current supply-demand situation.

Pricing Strategy and Market Dynamics

For the next few weeks, a good strategy is to have short-term upside exposure, possibly through call spreads on November or December 2025 contracts. The slight upside risk mentioned, along with positive manufacturing data from China, suggests that any price dips could be good buying opportunities. While volatility may stay controlled, the risk of a sharp surge is higher than a downturn before the end of the year. Looking ahead, the expected surplus of 1.9 mb/d in 2026 implies a bearish outlook for future contracts. Traders might consider calendar spreads, selling mid-2026 futures while buying late-2025 contracts to benefit from a developing contango. This aligns with the belief that OPEC+ will halt production increases in early 2026 as inventories rise. We should also note OPEC+’s flexibility, as seen in their significant interventions from 2022 to 2024. The expectation that they will stop quota increases if stocks grow seems valid, given their historical focus on market stability rather than just volume. This creates a price floor while limiting extreme increases beyond 2025. The forecast highlights supply growth in the Americas, especially from non-OPEC sources, which may put downward pressure on WTI relative to Brent. This indicates that the Brent-WTI spread could widen from its current narrow range of about $4.00. Traders might position for this widening by buying Brent futures and selling WTI futures for the same delivery period. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Japan’s economy saw stronger growth in the second quarter than first thought, continuing a pattern of expansion for five quarters. Updated data shows that the real GDP grew at an annualized rate of 2.2%, which is double the original estimate of 1%. Quarterly growth was recorded at 0.5%. Both consumer spending and business investments were revised upwards, although capital spending was not as strong as before. While these numbers may ease some worries about the sustainability of the recovery, challenges remain due to political uncertainty, bond market changes, and high U.S. tariffs. Economists caution that tariffs might affect corporate profits, which could hurt wage growth and domestic demand as the Bank of Japan considers raising interest rates further.

The Real Story Behind GDP Growth

The updated 2.2% GDP growth for the second quarter highlights the strength of the domestic economy. However, we see this as potentially misleading for investment strategies. With the Nikkei 225 index performing well this year and sitting near 41,500, these positive domestic numbers may already be accounted for. The real issue is the conflicting pressures from external factors, suggesting a better environment for volatility trading rather than straight long bets. We believe the Japanese Yen is crucial to monitor in the coming weeks. In August, core inflation was steady at 2.8%, increasing the likelihood of a Bank of Japan rate hike by year-end. As the USD/JPY exchange rate hovers around 155, traders might want to consider buying put options on this pair to benefit from a potential rapid strengthening of the yen. For those trading stocks, the recent expansion of U.S. tariffs to include certain auto parts poses a direct risk to major exporters, possibly overshadowing the positive GDP news. We see this as a chance to buy protective put options on the Nikkei 225 or specific automotive ETFs, allowing investors to benefit from potential gains while limiting losses due to any downturn in corporate profits from tariffs.

Bond Market Stress Signals

The bond market is showing significant stress, marking a shift from the calm experienced before the policy changes of 2024. The yield on the 10-year Japanese Government Bond is now consistently above 1.1%, a level not reached in over a decade, indicating a clear bearish trend. We believe shorting JGB futures is a straightforward way to align with the Bank of Japan’s increasingly hawkish stance. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Japan’s Topix index has hit a record high, showing strong performance across nearly all Prime Market stocks. The Topix is a key indicator of Japan’s stock market, and during morning trading, Japanese equities surged, pushing the Topix to its peak. The Nikkei 225 also saw an increase of 1.4%.

Impact of Political Changes

The resignation of Prime Minister Ishiba has had a positive effect on the stock markets. Furthermore, the weaker yen has made Japanese stocks more appealing to foreign investors. Notably, the GBP/JPY and EUR/JPY currency pairs have also reached their highest levels in 12 months. Recent economic data is favorable; Q2 GDP rose by 0.5% from the previous quarter, compared to an earlier estimate of 0.3%. The TOPIX index represents about 1,800 stocks from the TSE Prime Market and is weighted by market capitalization, providing a broad view of Japanese companies. In contrast, the price-weighted Nikkei 225 consists of 225 selected firms but is more vulnerable to market fluctuations due to its reliance on high-priced stocks. Overall, Japan’s financial landscape is evolving, driven by political changes and positive economic data. With the Topix surpassing its all-time high from 1989, we can expect greater momentum in Japanese equities. The weak yen, resulting from political stability and expectations of supportive policies, serves as a strong boost for the market. Investors may want to adopt bullish strategies, preparing for further gains in major Japanese indices in the weeks ahead. The yen’s decline has pushed the USD/JPY pair above 165, marking a multi-decade high and creating a focal point for currency traders. Considering buying call options on USD/JPY and EUR/JPY could allow profits from ongoing yen weakness. A declining yen increases profits for Japan’s large exporters, likely lifting the overall stock market as well.

The Role of Foreign Investment

The political shift and solid Q2 GDP growth create a strong foundation for this market rally. Recent data from the Ministry of Finance in August 2025 revealed that foreign investors were buying Japanese stocks, investing over ¥2.1 trillion into the market, a trend we anticipate will continue. Selling out-of-the-money put options on the Topix index could be an effective way to collect premiums while betting on market stability or ongoing growth. When choosing an index, it’s crucial to understand the differences between Topix and Nikkei 225. The broader Topix offers a more accurate picture of the entire market and is suitable for stable, long-term investments. On the other hand, the more volatile, price-weighted Nikkei 225 may provide better opportunities for short-term traders looking to benefit from significant price fluctuations. We saw a similar trend in the early 2010s during Abenomics when the weak yen drove a bull market in stocks. The Bank of Japan has indicated that any policy normalization will be gradual, which should continue to support this environment. Therefore, long-dated call options on Japanese equity ETFs might be a wise choice for maintaining exposure to this trend. 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 (renminbi) as part of a managed floating exchange rate system. This allows the yuan to move within a range of +/- 2% around the midpoint. When determining this daily midpoint, the PBOC considers market supply and demand, economic indicators, and international currency changes, mainly focusing on the US dollar.

Daily Reference Rate

Every day, the PBOC establishes a reference rate that serves as a benchmark for yuan trading. This trading band allows the yuan to rise or fall by up to 2% from the midpoint during a trading day. The PBOC can adjust this range based on changing economic conditions and policy goals. If the yuan approaches the band limits or experiences high volatility, the PBOC may intervene in the forex market to maintain stability. This could involve buying or selling the yuan to minimize large fluctuations and ensure gradual adjustments. The reference rate and band system help the bank manage the yuan’s value while keeping the economy balanced. Recently, the People’s Bank of China hinted at guiding the yuan weaker, signaling a managed depreciation. This comes after China’s export growth for August 2025 was only 1.2%, which fell short of expectations and indicates a need for a more competitive currency. The central bank is not allowing the yuan to drop sharply but is permitting a steady decline to support the economy. For derivative traders, this controlled pace means that implied volatility in USD/CNY will likely stay low. This environment is good for selling options to gain premium, especially out-of-the-money calls on the pair. The PBOC’s involvement acts as a ceiling, reducing the chances of a sudden sharp increase above the managed range in the near future. The broader situation supports a weaker yuan, given that the US Federal Reserve recently indicated plans to keep interest rates at 5.0% to tackle ongoing inflation. This significant interest rate gap between the US and China still attracts capital flows into the dollar. Thus, the path of least resistance for the USD/CNY pair is upward, even if it is at a slow pace.

Historical Dynamics

We saw a similar situation in 2023 when the USD/CNY pair rose above 7.30. During that time, the PBOC also set strong daily rates to slow the depreciation rather than resist the overall trend. History suggests that the current strategy is more about easing the process, not changing the goal. In the coming weeks, we will closely monitor China’s industrial production and retail sales data for signs of the economy’s health. Any major downside surprises in these figures could lead authorities to guide the yuan even weaker. The daily reference rate will remain the most critical data point, as any significant deviation from estimates could indicate a potential change in policy. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Mixed Results for Japan’s Growth

Capital spending grew by 0.6% from the previous quarter, but this was less than the expected 1.3%. Despite these mixed outcomes, positive GDP numbers have supported the Japanese yen. In July, the current account was 2.684 trillion yen, below the forecast of 3.366 trillion yen. However, bank lending in August rose by 3.6% compared to last year, surpassing the expected 3.2%. Nikkei futures rose 1.5% in early trading. Nevertheless, after Prime Minister Ishiba resigned, the yen weakened, with the USD/JPY exchange rate around 148.10. The surprisingly strong GDP growth in Q2, mainly due to doubling expected private consumption, indicates a solid economic foundation. This strong domestic demand boosts confidence in a continued rise for Japanese stocks. We are considering long positions in Nikkei 225 futures, especially as the index has already surpassed the 41,000 resistance level during early trading.

Opportunities Amid Political Uncertainty

Even with strong economic data, the yen remains weak due to political uncertainty, with USD/JPY around 148.10. This situation could present an opportunity because stronger economic fundamentals suggest the yen may rise once a stable government is established. We remember a similar scenario in mid-2024 when political concerns caused a temporary dip in the yen before it rebounded. We’ll be looking for signs of a political resolution to decide on shorting USD/JPY or buying JPY call options. The mixed signals of a strong economy and political instability indicate increased market volatility in the weeks ahead. The Nikkei Volatility Index rose 4% this morning to 18.5, showing market nervousness. This suggests that buying straddles or strangles on the Nikkei index could be a smart strategy to capitalize on significant price movements in either direction. One weak point in the data was the lower-than-expected capital expenditure, which suggests businesses may be reluctant to invest during this political turmoil. This hesitation is also seen in recent industrial production figures, which showed a slight decline of 0.2% for July 2025. We will closely watch policy announcements from the new administration, as any fiscal stimulus or pro-investment measures could particularly benefit stocks in the industrial and technology sectors. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

In July, UK employers reported the lowest pay increases since late 2021, with hiring also slowing down. Surveys showed that starting wages for new hires were very weak during this period. Median wage increases dropped to 3% in the three months before July, down from 3.4% in June. Only 9% of companies provided raises of 4% or more, a significant decline from the previous 39%.

Slow Growth in Starting Salaries

Recruiters noted that starting salaries for permanent jobs grew at the slowest pace in four and a half years. Additionally, candidate availability rose to its highest level since 2020 due to layoffs and concerns about job security. This decline in pay may ease inflation concerns for the Bank of England. However, employers are still cautious as they await Chancellor Rachel Reeves’ budget announcement in November, which may include tax increases. With the new data showing slowed pay and hiring, the Bank of England may have more reasons to cut interest rates. The drop in median wage growth to 3% suggests that inflation pressures from the job market are easing. This shift places a spotlight on UK interest rate derivatives, like SONIA futures, for anticipating a more dovish policy ahead. Recent inflation figures released in late August 2025 show that the UK’s Consumer Prices Index (CPI) fell to 2.1%, just above the Bank’s target. This is a significant decrease from the 3.9% rate at the end of 2023, making a case for relaxing policy further. Historically, when wage growth slows sharply alongside falling inflation, central banks have tended to lower borrowing costs within the next six months.

Impact on the Pound and Equity Market

The anticipation of lower interest rates is likely to put downward pressure on the pound sterling. We expect currency markets will start pricing in a rate cut before it happens, which may weaken GBP against the US dollar and the euro. As a result, we are considering put options on GBP/USD to take advantage of this expected decline in the coming weeks. Regarding the UK equity market, the outlook is more complicated. Concerns about possible tax hikes in the November budget could hinder growth. This caution among employers might lead to lower corporate investment and earnings, limiting any upward movement in the FTSE 250. Therefore, we are looking at protective strategies, like purchasing put options on UK stock indices, to guard against potential market weakness before the Chancellor’s announcement. The combination of economic slowdown and political uncertainty surrounding the budget is likely to increase market volatility. The gap between anticipated and actual policies from both the Bank of England and the government creates trading opportunities. This environment makes strategies that benefit from price fluctuations, such as long straddles on the FTSE 100, an attractive option 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

Martin Schlegel, the President of the Swiss National Bank (SNB), recently emphasized that reintroducing negative interest rates is unlikely due to their negative effects on savers and pension funds. Currently, the policy rate is at zero, so the bank is cautious about making any changes. Negative rates would only be considered in exceptional cases, taking into account factors like US tariffs and domestic inflation. In June, the SNB cut rates to zero, continuing a series of reductions that started in March 2024. Most market analysts believe this policy will stay the same until at least 2026. Inflation is slightly positive and matches the bank’s expectations. Schlegel justified the earlier cuts, saying they prevented more drastic actions, but acknowledged that this limits the SNB’s ability to respond to the effects of US tariffs.

Swiss Franc Stability

The SNB’s reluctance to bring back negative interest rates indicates that the Swiss franc is likely to remain stable in the next few weeks. Schlegel’s statements effectively set the policy rate floor at zero, unless we face a severe economic crisis. This stability suggests that implied volatility in franc options will stay low, making strategies aimed at profiting from low volatility, like selling strangles on EUR/CHF, attractive. Recent economic data supports this view. August’s Consumer Price Index (CPI) numbers showed inflation at just 0.8% year-over-year, which is comfortably within the bank’s target range and provides no reason for a rate hike. Additionally, the slow GDP growth of 0.3% in Q2 means the SNB has little motivation to change rates, keeping short-term interest rate futures stable.

Potential Risks and Market Reactions

The biggest risk to this steady outlook is the possibility of new U.S. tariffs, which could significantly impact Swiss exports. We are monitoring the White House’s review of tariffs on Swiss watches and pharmaceuticals closely, as this could lead to a surge in demand for the franc as a safe haven. For traders, selling short-term volatility might be appealing, but it would be wise to consider holding some inexpensive, longer-term call options on CHF to guard against this specific political risk. Reflecting on the rate cuts that began in March 2024, it’s clear that decisive action from the SNB could weaken the franc, but that trend has stalled since rates were set to zero in June. Current market pricing shown in SARON futures indicates that there is almost no expectation of a rate change until well into 2026. This broad consensus means that any unexpected announcement, particularly a sign of a more aggressive approach, could lead to significant market reactions. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now