US Treasury Secretary Scott Bessent said recent moves in the Japanese yen were “pretty well contained” and did not resemble the disorderly conditions that prompted a joint Japan–US intervention last month. He also said Japan was likely at the end of the Abenomics reflation programme and that he plans to meet Bank of Japan Governor Kazuo Ueda on the sidelines of the G20 finance leaders’ summit. Bessent said he would not advise on whether the BoJ should pursue back-to-back rate increases, and indicated Ueda would act appropriately on monetary policy with the Prime Minister’s support.
On China, Bessent said Washington would hold “very robust” talks focused on preventing powerful models from reaching non-state actors. He said he would urge G20 countries to reassess trade terms with China to reduce global imbalances, arguing tougher trade barriers would push Beijing towards domestic demand. The US is seeking tariff cuts covering $30 billion in non-strategic goods on each side, while Bessent cited China’s $1.2 trillion trade surplus as unacceptable. In markets, USD/JPY was up 0.02% at 160.15, while AUD/USD fell 0.06% to 0.7160.
Derivatives Opportunities in Yen, Dollar, and Aussie
We believe derivative traders should capitalize on the reduced threat of immediate currency intervention by selling short-term USD/JPY upside volatility. With the US Treasury viewing the Yen’s slide past 160 as “contained” rather than disorderly, the fear premium that previously spiked option implied volatility is bound to deflate. We recommend utilizing short strangle strategies or writing out-of-the-money call options on USD/JPY to capture this premium decay over the next two weeks.
The fundamental pressure on the Yen remains heavy as the interest rate gap between the US and Japan persists. Currently, the US 10-year Treasury yield hovers near 4.1% while the 10-year Japanese Government Bond yield struggles to stay above 1.1%, leaving a wide 300-basis-point yield differential. We suggest maintaining long USD/JPY positions via futures contracts, using tight stop-losses just below the 158 level to protect against any unexpected Bank of Japan policy shifts.
We must also prepare for heightened volatility in China-proxy assets ahead of the highly anticipated US-China summit in late September. With the US targeting China’s massive $1.2 trillion trade surplus and threatening tougher trade barriers, the Australian Dollar is highly vulnerable. Derivative traders should consider buying protective puts on AUD/USD, which is currently trading weakly at 0.7160, to hedge against sudden tariff announcements.
Implications of US-China and Tech Policy
The US focus on keeping advanced AI models from reaching non-state actors will likely trigger fluctuations in mega-cap tech derivatives. We recommend buying calendar spreads on the Nasdaq 100 index to position for increased regulatory scrutiny on semiconductor and AI-focused software giants. This strategy allows us to benefit from rising long-term volatility while limiting our upfront premium costs.
