Insights 
VT 
Japan’s Prime Minister Ishiba has agreed to meet with President Trump in Canada. He maintains his stance on seeking the removal of US tariffs.
President Trump mentioned that auto tariffs might be introduced soon. The discussions between the two leaders will be pivotal in addressing trade issues.
Trade Tensions At A High Level
The Japanese Prime Minister, Ishiba, meeting face-to-face with President Trump shows that tensions over trade are being taken seriously at the highest level. Their conversation is expected to focus heavily on the threat of new tariffs, especially auto-related ones. Trump’s mention of possible car tariffs isn’t just political rhetoric; it carries weight for cross-border manufacturing and broader export flows. If these charges come into effect, they would greatly affect shipping volumes, pricing margins, and forecasts tied to industrial output.
We should say it plainly – if tariffs are imposed soon, particularly on vehicles, there is a narrow window to rebalance exposure. Markets have already begun to factor in some of these risks. Price distortions in short-dated futures and options tied to transport and manufacturing suggest hedging activity is rising. The implied volatility why spreads are increasingly asymmetric implies others are acting now rather than waiting.
From what we’ve been tracking, traders haven’t given up on a deal being struck, but they are positioning as though sharply higher input costs could hit by quarter-end. It would be reasonable to expect that strategies reliant on calm or low-volatility regimes will become more vulnerable if talks stall. As we’ve seen before, even a casual comment from someone like Trump can move pricing brackets by a non-trivial margin.
Dealers have also started building positions that protect against both outcomes—those that assume tariffs will be delayed, and those that assume they arrive all at once. Wide straddle moves, particularly around monthly expiries, make sense in this context. We have noticed this particularly in textiles and consumer durables names, not only in autos. Reaction in credit index options tells a similar story—lower quality names are being repriced faster than investment-grade, and curve flattening already shows that duration risks are being reweighted with mixed confidence.
Short Lived Dislocation Opportunities
From our end, we’re looking at any softness in counter-fitted markets as temporary rather than a sign that risks have been removed. This also affects onshore hedging positions in yen and dollar pairs. Any stabilisation will require a clear lowering of tariff threats—not just a pause. Otherwise, implieds will likely remain too erratic to justify large unhedged directional bets.
It’s worth noting that Ishiba’s goal—to have the tariffs removed entirely—is more ambitious than what current futures pricing appears to expect. That mismatch between political aims and market baselines creates dislocation opportunities, if handled with care. But those are narrow and short-lived.
Convexity trades have picked up in sectors most tied to bilateral trade tensions. Triggers are specific, and setups rely on follow-through. We’re focusing on two-week rolling averages of skew and term structure to catch early shifts. Whatever the outcome of the Canada meeting, reactions will not be slow. They rarely are.
