Japanese Prime Minister Ishiba resigned, affecting the yen as USD/JPY and its crosses hit multi-month highs. The leadership election is anticipated for early October, and Ishiba’s resignation follows a significant election defeat for his coalition. Revised GDP data reveal Japan’s economy grew by 2.2% annualised in Q2, up from a preliminary 1.0%, fuelled by private consumption.
China’s August trade figures showed exports growing, but U.S. shipments fell 33% y/y with overall growth missing forecasts. The yen remained weak amidst ongoing political uncertainty, causing the Bank of Japan to likely wait on any policy changes until new leadership is in place.
Market Movements
In terms of other news, Japan’s Nikkei 225 index increased by 1.5%, reaching an all-time high along with the TOPIX index. Conversely, stocks in Hong Kong saw a modest rise of 0.35%, while Shanghai Composite increased by 0.11%. In Australia, the S&P/ASX 200 slipped by 0.27%. China continues its economic path, including stable exports in yuan terms despite dollar-term slight underperformance. Additionally, there was cautious optimism towards upcoming events, such as the BRICS summit and overall international relations affecting the markets.
Political uncertainty in Japan is the main driver right now, which should keep the yen weak. We see the USD/JPY exchange rate pushing towards 150, a significant psychological level that triggered intervention warnings back in late 2022. Derivative traders should consider buying call options on USD/JPY to capitalize on further yen weakness heading into the October leadership election.
The instability surrounding the Bank of Japan’s future policy is causing a noticeable spike in currency volatility. One-month implied volatility for USD/JPY has jumped to over 12% this week, a sharp increase from the 8% average we saw last month. This suggests strategies like buying straddles could be profitable, betting on a large price swing once a new prime minister is named.
Economic Strain and Markets
China’s disappointing trade data, particularly the 33% plunge in exports to the U.S., signals persistent economic strain despite internal stimulus measures. The People’s Bank of China also seems hesitant to cut interest rates, creating an uncertain outlook for the yuan. This weakness could spill over to proxy currencies like the Australian dollar, which has already seen its exports to China slow by 5% in the last quarter.
Given the weak Chinese trade figures, we might use options to express a bearish view on assets tied to Chinese growth. Buying put options on the Australian dollar against the U.S. dollar (AUD/USD) could be an effective hedge against further negative economic data. The pair recently fell below the key 0.6400 support level, and more weak Chinese numbers could accelerate this decline.
All eyes are now on this week’s U.S. CPI data, especially after last month’s report showed core inflation remained stubbornly high at an annualized 3.8%. Another hot inflation print would pressure the Federal Reserve to maintain its restrictive stance, further strengthening the U.S. dollar. This macro headwind makes any short-yen or short-yuan positions even more compelling.
The continued surge in gold past $3,500 an ounce, supported by consistent central bank buying, presents a clear bullish trend. The latest World Gold Council report from August 2025 confirmed that official sector demand remains at a record pace, a trend that has been accelerating since 2022. Traders could look at buying call spreads on gold futures or related ETFs to participate in the upside while managing the cost of premiums.
