Insights 
VT 
Japan’s Industrial Production experienced a decline in August, with a year-on-year decrease to -1.6%. This followed a previous decline of -1.3%.
The recent industrial production data for August 2025 confirms a cooling trend we’ve been monitoring in the Japanese economy. This second consecutive monthly decline points toward broader manufacturing weakness. As a result, we should position for continued economic softness in the coming weeks.
Buying Put Options
Given that lower production directly impacts corporate earnings, we are considering buying put options on the Nikkei 225 index. This view is strengthened by the latest Tankan survey for the third quarter of 2025, which also revealed a dip in business confidence among large manufacturers. These instruments provide a clear way to position for potential downside in equities.
This persistent economic weakness makes it highly unlikely the Bank of Japan will tighten its monetary policy. This growing policy divergence with the US Federal Reserve, which has held rates steady through 2025, should continue to place downward pressure on the Yen. Therefore, we see opportunities in going long on USD/JPY futures contracts.
Adding to our concern, the most recent export data for September 2025 showed a notable slowdown in shipments to key markets like China and Europe. This external drag helps explain the slump in domestic production. It reinforces the bearish case for Japanese equities and the Yen.
Historical Parallels
We saw a similar dynamic play out in the early 2010s, when weak domestic data kept the Bank of Japan in an extremely accommodative stance for years. That period was characterized by a significantly weaker Yen. This historical precedent supports the idea that the current slowdown will likely fuel the same currency trend.
