Effectiveness of Current Monetary Policies

The summary outlines differing opinions on the effectiveness of current monetary policies such as interest rate adjustments and asset purchases. Some members caution against excessive pessimism despite uncertainties, and stress flexibility in monetary guidance. Concerns are raised about U.S. tariffs potentially affecting Japan’s economy and prices.

The document precedes the more detailed Minutes, which will be released in a few weeks. The Summary of Opinions offers accessible insights into the BOJ’s current economic stance, while the forthcoming Minutes will provide a comprehensive account of the discussions.

What the current summary lays bare is the internal tension between confidence in Japan’s economic pickup and the remaining threads of caution that accompany global unpredictability. One member of the board suggests further rate hikes could be justified on the back of better output and sustained price growth. That view, though, exists alongside more reserved voices, who highlight that global forces—especially those out of Washington—could blow some of those gains off course.

Concerns about American trade actions are neither new nor surprising. Yet their timing and focus, particularly when tariffs or import levies are involved, matter markedly. This is because abrupt shifts in trade terms have a way of feeding into supply chains, lifting costs just as inflation shows signs of sticking near target. Although it’s tempting to assume that tariffs are political noise, several on the board acknowledge that they can seep quickly into inflation expectations and raise import prices.

When we overlay this with the discussion around global supply bottlenecks, it paints a more complicated picture. While the worst of shipping congestion and component shortages seems behind us, the memory of it remains fresh enough for some to warn against complacency. Price trends still have the potential to deviate without much notice, particularly if upstream costs begin shifting amid renewed trade friction or energy price swings.

Interpretation of Price Signals

The split views on the Bank’s current methods—rate tweaks and asset purchases—carry broader meaning. While some back the existing approach as generally effective in shaping inflation and output, others are nudging for more agility. That push for flexibility is interesting. It’s a signal that, while certain tools remain in use, their effectiveness can’t be taken for granted, especially if the external environment suddenly sharpens.

We think it’s important to view this as a moment where temporary calm shouldn’t be mistaken for predictability. One lesson traders can draw from the Summary is that conviction about medium-term inflation trends is not yet broadly held within the BOJ. That’s a factor that feeds directly into rate policy, and those who rely on forward guidance might find the Bank’s stance less directional, at least for now.

Also worth noting is how several members are pushing back against overly negative thinking. That isn’t just optimism—it’s a warning against allowing hesitation to influence market expectations too heavily. Flexibility doesn’t mean inaction. It means being willing to acknowledge when risks fail to materialise and being prepared to adjust positions—not just policy—accordingly.

The document itself is shorter and less detailed than the full Minutes, which are still pending. But already, it hints at broad themes that are unlikely to shift dramatically between now and then. For now, we’re looking at a board that is not in full agreement, but that recognises Japan is in a more balanced state than in recent years. However, they are aware that external disruptions could quickly dislodge this equilibrium. Likely, liquidity planning and exposure to rate-sensitive structures ought to be revisited in kind.

It’s also worth paying attention to how the group interprets price signals from abroad. Inflation isn’t only a domestic matter—it carries across from America and Europe in ways that traders must track closely. If the next U.S. CPI surprises on the upside, and tariffs start to look sticky rather than transient, then decision-makers in Tokyo might need to react faster than they otherwise would. That’s something to watch from a volatility standpoint.

Broadly, the language used in the BOJ’s summary encourages reading between the lines. Not because it’s unclear, but because it tries to convey a view that isn’t monolithic. Policy, for now, seems to have room in either direction. But it’s clear that the confidence needed to commit to a particular path isn’t quite there yet.

From our point of view, adjustments should prioritise responsiveness over static positioning. As risk factors gather or recede—U.S. trade policy, commodity prices, or internal wage dynamics—expectations will need sharpening. The BOJ may not be rushed into decisions, but the traders who interpret them shouldn’t lag behind.

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Gold prices in Pakistan increased on Tuesday, with the price per gram rising to PKR 29,312.23 from PKR 29,224.33 on Monday. The price per tola also rose, reaching PKR 341,898.90 compared to the previous day’s PKR 340,866.80.

US Treasury bond yields have been climbing, with the 10-year Treasury note yield reaching 4.453%. Real yields, according to US Treasury Inflation-Protected Securities, remained stable at 2.163%.

Central Bank Gold Purchases

Forecasts suggest US CPI for April will stay at 2.4% year-on-year, and core CPI is expected to maintain at 2.8% year-on-year. In April, the People’s Bank of China added 2 tonnes of Gold to its reserves, marking the sixth consecutive month of increase, while the National Bank of Poland and the Czech National Bank also grew their reserves.

Market expectations include the Fed’s rate cut of 25 basis points at the July meeting, with another potential decrease later in the year. Gold prices in Pakistan are calculated using international prices adjusted to local currency and units, with daily updates reflecting market rates.

Gold gained slightly in domestic pricing, moving to PKR 29,312.23 per gram and PKR 341,898.90 per tola. That moderate rise reflects strength in global demand, fuelled in part by central banks accumulating reserves. China, for instance, made another purchase in April, its sixth month in a row, adding two tonnes to its holdings. Poland and the Czech Republic followed a similar course. These actions typically don’t trigger immediate spikes, but they underpin a steady interest in gold as a long-term hedge, especially as inflation remains a talking point.

On the yields front, the 10-year US Treasury continues to grind higher, now sitting above 4.45%. What’s more telling, though, is that real yields have held near 2.16%, suggesting that inflation expectations are relatively under control. Regardless, this persistence in tight credit conditions helps explain why interest in non-yielding assets like gold hasn’t surged. Normally, when real yields stay elevated, we’d expect gold demand to soften, since it doesn’t produce income. But with rates potentially peaking and downside moves expected by mid-year, the current price resilience makes more sense.

Inflation Data and Market Positioning

Inflation data will offer fuel for decision-making. The US Consumer Price Index for April is unlikely to surprise — consensus puts headline CPI at 2.4% year-on-year, with core inflation steady at 2.8%. If these numbers print as forecasted, they affirm a deceleration without disinflation. That’s the fine balance the Federal Reserve seems content with for now. Naturally, if either number overshoots, bond yields could jump higher, pressing gold downward. But if inflation softens even slightly or labour data softens further, a July rate cut becomes much harder to ignore.

We’re also watching central bank activity for shifts. Sustained gold buying by monetary authorities suggests a preference for diversification — particularly away from reserve currencies historically seen as safe. Geopolitical risks linger in the background, and regional instability may keep safe-haven assets attractive. That theme isn’t going away soon.

For those exposed to leveraged products or volatility-linked instruments, it’s worth noting that gold’s stability — despite rising yields — is a structural signal. The market is already pricing in upcoming rate changes. If you’re reacting solely to current yield moves without considering the broader monetary stance or institutional demand for metals, you could be misaligned.

From our side, priority should shift towards front-loading positioning ahead of CPI and FOMC minutes. Premiums in volatility pricing may remain subdued until there’s a catalyst, so this remains a window for recalibrating risk. The question isn’t whether rates will be cut — it’s when. And whether the market prices these shifts gradually or in lurches. Either way, we’re likely to see skewed risk exposure in the event inflation data underwhelms or geopolitical conditions deteriorate.

Traders should beware anchoring expectations too heavily on treasury yields alone — central bank demand has proven sticky, and that creates a stabiliser below spot trends. Pricing in this conviction may be more important than momentum signals over the next few cycles.

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The U.S. Trade Representative announced that China has agreed to remove countermeasures as part of recent tariff discussions. The outcome of these talks was described as pragmatic, with the option to reimpose tariffs if agreements fall through.

Following this news, markets responded positively. The S&P 500 showed favourable movements, and ForexLive reported substantial relief across global markets due to the resolved trade tensions.

European Market Reactions

In the European market, the announcement of U.S.-China agreements to lower tariffs after negotiations also resulted in positive responses. Both American and European financial sectors saw an upswing in response to the easing trade war fears.

What the existing content is conveying, in essence, is that both the United States and China have made a gesture towards easing tensions in their long-standing tariff dispute, with China agreeing to remove certain retaliatory duties. The US has made it clear that while agreements have been reached, there remains an enforcement mechanism—tariffs could be reinstated if the agreed conditions are not upheld. The markets, in turn, welcomed the news with relief and optimism, interpreting the move as one that may offer stability in the near term—at least until another policy update or political development triggers fresh uncertainty.

We can observe from recent reactions that the capital markets are not solely driven by hard economic indicators at this point. Sentiment continues to play a large role, particularly when it comes to cooperation between large economies. With Chinese counter-tariffs now on pause, and the US maintaining the option to reverse course, volatility risk hasn’t disappeared—it has simply shifted timelines. That knowledge matters greatly when planning entries and exits across leveraged assets.

Options And Futures Strategies

From an options and futures perspective, the repricing of risk is likely to be an ongoing affair for at least the next several sessions. Volatility indexes have already retracted somewhat—though not to extreme lows—which reveals that participants aren’t expecting an entirely smooth path ahead. Instead, we’re encountering a cautiously optimistic tone. That presents possibilities, particularly in short-dated contracts where premiums may have come off recent highs. Strategies that seek to benefit from lower implied volatility could now become more appropriate.

Pérez, who closely monitors how macro adjustments bleed into derivatives pricing, pointed out that a clean break from retaliatory tariffs can often lead to asymmetrical reactions in bond hedges and gamma activity. In practice, that has emerged through lighter bid interest on downside protection, with a lean back toward call spreads across mid-term cycles. For those monitoring extended yield curve positions, there’s a readjustment forming, and it’s much less about downside fear and more about timing shifts in monetary assumptions.

Looking at the currency side of the impact, the relief rally had ripple effects into the dollar’s valuation, particularly against the euro and yen, with long-dollar positioning easing slightly. Short gamma plays in yen pairs have begun to attract new positioning, though mostly with conservative sizing—perhaps reflecting the market’s expectation that central banks will remain paralleled for the foreseeable future.

Earlier in the week, Jensen had said that while headlines move spots and the broader indices, the real wash-through happens in derivative markets over days, not hours. That’s ringing true now. The response we’re seeing isn’t a case of euphoric repositioning, but recalibration—one that brings with it focus on strike proximity and curve steepening, not broad risk-on exposure.

For anyone managing correlated risk among asset classes, having visibility on where hedges have lightened—and where options dealers are now delta-neutral—may offer an advantage. Look closely at open interest shifts in equity index options and interest rate swaptions. There are growing signs of directional pressure being replaced by convexity-neutral trades, especially around expiries tied to upcoming central bank minutes.

In brief, while headline relief has helped reset positioning after weeks of anxiety, the technical patterns in derivatives are showing discernment, not outright optimism. Add spacing to your modelling, widen your input windows, and expect that the next adjustment may come not from trade commentary, but rate projections.

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Impact of Option Expiries

In USD/CHF, 0.8325 sees 469 million US dollars. AUD/USD shows a notable amount at 0.6545, at 1.4 billion Australian dollars. Meanwhile, USD/CAD sees 1.3875 at 882 million and 1.3885 at 578 million US dollars.

NZD/USD observes a level at 0.5955 with 496 million New Zealand dollars. Furthermore, EUR/GBP has an expiry at 0.8405 with 686 million euros.

Participants should conduct detailed analysis before any transactions, considering the marked risks and potential for full capital loss.

The current data on upcoming currency option expiries reveal concentrated levels that could lead to short-term price clustering or hesitation near those thresholds as traders and market-makers manage exposure and hedge risks. When large option volumes lie close to current spot prices, there is often an impact on short-term momentum due to hedging activity.

Looking at the euro-dollar pair, the highest aggregated volume appears at 1.1300 with roughly €1.8 billion due to expire. A build-up of this size often acts as either a gravity point or a ceiling, depending on market direction and how far away the spot rate is as we approach expiry. The neighbouring clusters at 1.1355 through 1.1375 suggest a zonal resistance above, where short-term trading could become choppy. We tend to see positioning from institutions trying to keep the price within a zone to prevent options from moving deep in- or out-of-the-money. If EUR/USD drifts upward in the coming days, focus may turn to whether pricing converges closer to 1.1375, with those holding long gamma potentially helping to contain volatility near expiry.

Key Levels and Strategy

In sterling-dollar, the £930 million concentrated at 1.3200 can be interpreted as a psychological level with hedging flow likely to ramp up should we approach. Depending on where spot is situated relative to this figure, gamma activity could lead to intraday swings increasing. Passive order flow may gather once the market nears that price, especially in lower liquidity sessions.

Turning to dollar-yen, we see a notable volume of $1.9 billion at 143.00, a level that could anchor price once approached. With another expiry at 151.00 carrying $1.2 billion, this pair has notable distribution across a wider range than others. This suggests a broader corridor which may lead to sharp movements if macro drivers push spot outside the band. The $567 million at 146.75 can create a temporary magnet under particular conditions such as low volatility or directional hesitation ahead of central bank events. Our approach involves considering how far away spot currently is from each cluster, and measuring the potential pull as price migrates.

In the case of the Swiss franc, the $469 million at 0.8325 is on the lighter side in terms of broader positioning, but still warrants awareness. Often when expiries aren’t as high in notional terms, they exert less influence unless compounded by technical or sentiment-based alignment. However, any misstep in monetary policy tone could cause revaluation towards this expiry level quickly.

Australian dollar-dollar shows $1.4 billion due at 0.6545 – a meaningful congregation, with a high enough notional to justify monitoring closely. Historically, gamma activity in the AUD/USD pair tends to manifest more erratically versus G3 currencies, especially during higher beta risk days. If options are tightly packed near short-term support or resistance, markets may oscillate unpredictably, with dealers either defending positions or adjusting vega on short notice.

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A reduction in U.S.-China trade barriers may decrease the risk of a severe supply-driven inflation shock. However, inflation remains persistent, delaying the Federal Reserve’s rate cuts until no earlier than December, according to Deutsche Bank economists.

Despite the easing trade tensions, analysts believe inflation will stay at high levels, preventing rapid rate cuts by the Fed. Deutsche Bank maintains that its outlook aligns with a December timeframe for the Fed’s first rate cut this year.

Goldman Sachs also revised its expectation, now predicting a Federal Reserve rate cut in December instead of July. Meanwhile, Citi anticipates a cut in July rather than June.

Economic Forecasts for Rate Cuts

This portion of the article outlines how easing trade hurdles between the U.S. and China might help limit any sharp spikes in prices, particularly those caused by supply disruptions—think components, raw materials, and manufacturing chain bottlenecks easing up slightly. However, inflation nationally remains elevated—not surging suddenly, but not dropping quickly either. This stubbornness adds pressure on central bank policymaking, and according to Deutsche Bank, it means the first reduction in interest rates is pushed towards the end of the year rather than the summer. They’re not alone—Goldman also shifted their rate cut view later to December, whereas Citi stands out as still expecting an earlier move, now seeing July rather than even sooner in June.

With monetary policy expectations sliding further down the calendar, the implications for us watching rate-sensitive instruments are fairly direct. Although worry about supply chain issues is retreating somewhat, the sticky nature of inflation keeps policy-makers cautious. We ought to read into this: the probability of rate cuts affecting forward rates, options pricing and leveraged yield strategies within the near-term window has lessened. Betting on lower rates this summer, especially in highly time-sensitive positions, now carries considerably more risk.

From our seat, the divergence between forecasts is worth noting. While Deutsche and Goldman are gradually becoming more dovish—albeit on a delay—someone like Buiter’s team still sees earlier relief. That variance is narrowing, but the market hasn’t digested it equally. We might start to notice more re-pricing in the short-to-medium end of swap curves and futures.

Monitoring Macroeconomic Indicators

Pay attention to incoming macro data in the next few weeks. Anyone holding duration-sensitive derivatives should assess how housing and wage pressures develop—core inflation figures tied to services may not dip fast enough to shift the Fed stance early. Strong payroll reports or consumer confidence gains could keep upward pressure on rate expectations.

Moreover, volatility implied in short-dated options, particularly those straddling July FOMC, seems likely to move as the debate between sooner-or-later cut camps continues. Trading strategies placed around that meeting date might be at risk from adjustments as conviction around the timing stiffens or weakens, depending on the stream of economic indicators.

For positioning, we should be strategic rather than reactive. Given the slower-than-expected pace of disinflation, and with market-based rate cut expectations slowly aligning around year-end, shorter-dated bearish trades on rates may have more justification in the next cycle. Those anticipating earlier moves may find reward thin unless data strongly surprises in the downside direction.

Watch the data, not the noise. Don’t lean too far into optimistic projections of early easing—stick to the contracts that benefit from delay.

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USD/JPY saw a decrease, trading around 147.90, after a previous session with over 2% gains. This change occurred amid ongoing uncertainty related to the Bank of Japan’s (BoJ) interest rate outlook.

BoJ Deputy Governor Shinichi Uchida pointed to potential US tariffs affecting Japan’s economy. He noted expected slower economic growth, with a gradual recovery anticipated.

Rising Wages and Inflation Concerns

Uchida also mentioned rising wages, suggesting companies might pass on higher labour costs, possibly affecting inflation. Japanese Finance Minister Katsunobu Kato discussed plans to meet US Treasury Secretary Scott Bessent regarding foreign exchange and tariffs.

The BoJ’s recent policy meeting highlighted persistent uncertainty and differing views among policymakers. Concerns were raised about the potential impact of US trade policies on Japan’s economic outlook.

The US and China have agreed to pause imposing high tariffs as part of preliminary trade discussions, providing temporary market relief. Meanwhile, traders are eyeing the upcoming US Consumer Price Index (CPI) report, with expected rises in both headline and core CPI figures.

The Japanese Yen, one of the most traded currencies, is influenced by various factors, including the BoJ’s policy. Its role as a safe-haven investment means it’s valued during market stress.

Yen as a Safe Haven Asset

The dip in USD/JPY to around 147.90, following the previous day’s rally, reflects a pushback against the sharp moves sparked by monetary policy divergence. The small drop shows a recalibration more than a reversal, triggered as some of the recent optimism around Japanese policy normalisation was checked by the BoJ’s forward guidance, which remains cautious.

Deputy Governor Uchida’s remarks underline the fragility of Japan’s economic rebound. He clearly flagged the potential drawbacks of new trade barriers, particularly from the United States. The mention of possible spillover effects on exports wasn’t headline-grabbing, but for those of us watching for policy adjustments, it offered another reason to moderate expectations of aggressive tightening from the BoJ. The talk of stronger wages sounds positive at first glance, but with companies looking to pass costs to consumers, inflationary pressure could become less transitory than policymakers might assume it to be. This raises questions about timing and magnitude of any future rate adjustments.

Finance Minister Kato’s plan to meet with Bessent also reveals something else—tensions about the yen’s depreciation are not localised to domestic circles. When such high-level diplomatic meetings appear around currency and tariff subjects, it hints at preparatory steps being taken for possible intervention or coordinated policy talks, even if unofficially.

The BoJ board remains split, and that matters. Some members are still pointing to stable inflation being quite some distance away, despite rising prices in recent prints. That internal divide adds another layer of complexity for those trying to gauge Japan’s likely timing on further moves. It suggests no meaningful shift is likely without firm data to settle the dispute.

On the US side, the delay in further tariffs with China offers stability, but only in the short term. Such temporary truces reduce immediate volatility, though we shouldn’t rely on them to signal an end to broader uncertainty, especially with inflation still sticky. The upcoming CPI data will play an outsized role, particularly with expectations for stronger core inflation. If the US prints stronger-than-forecast numbers, rate expectations could shift again, bringing further rate premium to USD positions. That, naturally, could weigh on JPY.

The yen, being a traditional safe-haven choice, tends to react not just to Japan’s fundamentals, but also to broader market risk sentiment. In times of geopolitical or financial market stress, it traditionally strengthens, acting as a counterbalance to the global equity picture. At the same time, when risk appetite returns and carry trades gain favour, it finds itself on the backfoot.

Looking ahead, short-term positioning may need adjusting. The market had arguably priced in too much optimism around a BoJ pivot. With that now appearing less imminent, some retracement in yen strength is understandable. We have to weigh upcoming macro releases—with CPI at the top—and listen carefully to both US and Japanese policymakers for further clues. The tone and timing of follow-up statements, particularly if coordinated, could impact how much interest rate asymmetry remains embedded in FX pricing.

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Hassett, serving as Trump’s director of the National Economic Council, is focusing on reviving relations with China. Discussions will continue with officials like Greer and Bessent playing key roles.

There is an anticipation that markets might witness a ‘normalisation’ in various aspects. Over the coming weeks, there are 24 trade talks scheduled to further these efforts.

Key Insights from Interview

Hassett shared these insights during an interview on CNBC.

These remarks by Hassett point towards a deliberate effort to rekindle diplomatic and economic ties with China. From what has been said, it’s apparent that talks won’t be casual remarks through press statements, but rather structured, formal sessions—two dozen of them, scheduled and laid out, indicating a heavy push toward stabilising a previously turbulent dynamic.

Greer and Bessent, both influential in financial and political strategy spaces, are poised to be more than background voices. Their ability to steer discussion and shape expectations will be directly influencing real capital decisions. For anyone whose positions or models rely heavily on volatility pricing, the planned consistency in talks alone demands a re-think.

Normalisation in this context likely refers to a return to less erratic trade policy—possibly fewer abrupt tariff shifts and fewer unpredictable executive manoeuvres.

Impact on Market Dynamics

For us, this translates to tighter trading ranges and reduced intraday swings on politically sensitive instruments. It also increases the probability of clarity in pricing longer-term derivatives, especially those touching interest rate differentials or cross-border trade volume assumptions.

Given the deliberate nature of this diplomatic engagement, we may also see increased predictability in macro data releases and reduced arbitrage opportunities across Asian and American sessions, at least for high-frequency models that price off trade war noise. Those dependent on gamma-heavy structures or calendar spreads may need to account for smoother transitions between meetings, as price dislocations tied purely to headline risk may gradually soften.

This next stretch isn’t about speculation over outcomes, but rather about watching for consistency in tone and follow-through from announcements to execution. The burden of surprise may shift more towards external data than political tweetstorms. That alone nudges short-dated implied volatility lower, and makes calendar spreads with steep IV curves less attractive on the long side—though optimal flow dynamics may still favour carry strategies in front-loaded gamma books.

Overall, what we’ve heard sets a tone of intentionality—where uncertainties might linger, but the cadence of talks provides a rhythm that policy-sensitive instruments have lacked in recent quarters. We’re treating it as an alignment moment where repricing doesn’t happen overnight, but where each added meeting lays the groundwork for tighter bid-ask spreads and leaner hedging assumptions.

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Us China Trade War Overview

A trade war occurs when countries impose trade barriers, leading to escalating import costs. The US-China trade war began in 2018, when the US accused China of unfair practices, leading to retaliatory tariffs. An agreement in 2020 aimed to restore stability but tensions resumed as the pandemic shifted focus.

In January 2025, the US-China trade war gained momentum with Donald Trump’s return as US President. Trump reinstated heightened tariffs, leading to intensified global economic tensions. This has impacted supply chains, reduced spending, and increased the Consumer Price Index.

The content provides information for educational purposes and should not be viewed as financial advice. It is crucial to conduct personal research before making any investment decisions, considering the inherent risks and potential for significant losses. The article’s author does not hold any stock positions mentioned, nor do they have any business relationship with entities cited in the content.

Monitoring Trade Developments

We’re now seeing a recalibration in tone between Washington and Beijing, although it’s far from a settled matter. With China agreeing to lift prior retaliatory steps against the US, both sides appear to be moving closer to diffusing longer-standing trade tensions. However, any progress here rests on uncertain ground. A potential backslide remains entirely possible—tariffs, once shelved, could reappear swiftly if negotiations fail to proceed as expected. There’s little room for complacency.

The slight uptick in the Australian dollar, now trading near 0.6375 against its US counterpart, may reflect modest optimism surrounding easing tensions. That said, the rise is marginal, hardly enough to signal a clear trend. Currency traders should note how even minor developments in such macro-level matters can shift sentiment across pairs sensitive to global trade dynamics, like AUD/USD.

The historical backdrop frames the present context rather well. When initial tariff escalations began in 2018, the cost of moving goods across borders surged, companies scrambled to adjust logistics, and trade balances swung sharply. The 2020 agreement brought some relief, although its effects were undercut by the arrival of pandemic-related priorities. Many measures were left in limbo.

Then came January 2025—Trump’s return to office introduced a new phase. He moved quickly to reinstate aggressive trade policies, many of which had previously stoked inflationary pressure. The knock-on effects went well beyond bilateral trade: global manufacturing schedules faced fresh disruptions, importers passed on costs, and consumer prices crept up steadily. The resulting inflation has already made an impact, as reflected in upward moves in the CPI.

Over the next few weeks, we should be watching not only formal statements from the negotiating teams, but also how markets begin to price in these developments. For those operating in derivatives markets, volatility pricing on currency pairs and commodities exposed to cross-Pacific trade could shift in short order. This wouldn’t just affect directional bets—positioning around implied volatility, spread trades, and hedging strategies will also need to adjust.

In recent days, we’ve noticed implied volatility staying relatively contained, suggesting that the market is either skeptical of near-term escalations or simply waiting for firm headlines to react. That’s unlikely to hold if commentary from US trade officials or Chinese ministries begins steering towards confrontation again. Reassess positions accordingly.

Keep a close eye on freight indices, regional PMIs, and inventories. These offer forward-looking clues—not just on sentiment but on actual demand patterns, which ultimately lead price action. As tariffs move in and out of play, procurement timelines shift, FX hedging decisions change, and positioning in related equity and bond markets may catch traders off balance.

Unexpected headlines can appear in either direction. We’ve seen it before: markets settle into one story only for the opposite to emerge a few days later. Respond firmly, but not rashly. Watch volumes and flows during Asia-Pacific session openings—given the cross-border nature of these developments, activity will pick up first there.

And finally, while it’s tempting to infer longer-term resolution from a single agreement or press release, we’ve learned that such episodes rarely stick unless both sides maintain their course.

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Goldman Sachs has updated its forecast for the Federal Open Market Committee (FOMC) rate cut to December, previously expecting it in July. This adjustment is due to recent developments in the trade war and eased financial conditions over the past month.

The bank has increased its 2025 growth forecast by 0.5 percentage points to 1% for the fourth quarter year-over-year. The probability of a recession within the next 12 months has been reduced to 35%, and the core PCE inflation peak is now predicted at 3.6%, a decrease from 3.8%.

Us Tariff Reductions On China

Goldman Sachs notes that while US tariff reductions on China are beneficial, the overall effective tariff rate will remain high. They expect a minor decrease of less than 2 percentage points in the effective tariff rate from the relaxation of tariffs on China. The total set of US tariffs will remain higher and broader than previous market expectations from earlier this year.

What Goldman Sachs is effectively suggesting here is a tempering of earlier expectations regarding US monetary policy, predicting that rate cuts by the Federal Reserve will happen later in the year than originally anticipated. This delay stems from both international trade considerations – such as reduced tensions in the US-China tariff dialogue – and improvements in financial conditions that have occurred in the past several weeks. These changes have allowed policymakers to potentially wait longer before adjusting interest rates.

The forecasted shift to December rather than July signals a slower pace in monetary easing, pointing to increasing confidence in the US economy’s short-term resilience. With recession odds eased to a 35% chance within the next year, there’s an implication that downside risks, while still present, have lessened – though not completely receded. Inflation projections have likewise been trimmed, with core personal consumption expenditures (PCE) now expected to peak at 3.6%. That’s still above the Federal Reserve’s long-term target but moving in the right direction according to recent data trends and the growing confidence among institutional analysts.

Meanwhile, Hawtin’s assessment of the trade tariffs indicates an incremental but limited benefit. Despite the headline of tariff reductions, the actual fall in the effective rate is forecast to be minimal – under two percentage points. Tariff relief is slightly helpful to companies with production and supply chain exposure to China, but the broader implication is that overall trade policy remains restrictive by historic norms. This sustains pricing pressures, particularly in sectors where costs are passed through slowly.

Macro Indicators And Stability

The implication for us derived from this set of projections is that the immediate environment is not one of abrupt changes or unexpected shocks. Rather, it offers a runway of clarity in terms of policy timeline, which can assist in modelling rate sensitivities over coming expiration cycles. With the cut now further afield, pricing around duration-sensitive exposures may need to be revisited. There remains a gap between inflation expectations anchoring downward and the chance of aggressive easing; the latter appears reduced for now.

As we look at positioning, the current macro indicators reflect improved stability, but not yet softness that might demand urgency. Powell’s committee appears to be watching data on employment and spending patterns, letting it gather more evidence before acting. That slower rhythm provides room to adjust calendar spreads or reassess rate expectations over longer-dated instruments.

We also note that while the downward revision in growth capex may be modest, Sachs’ quarter-four forecast now anticipates only 1% real GDP growth year-over-year in 2025. That presents a ceiling on re-leveraging assumptions. There’s some room to plan around flatter output, which may contain upside risks but also decrease volatility in scenarios priced into long gamma.

Tariff effects, if they remain largely symbolic, offer limited relief on margin pressures, particularly in manufacturing-heavy exposures. However, the predictability of steady tariffs – rather than the threat of fresh rounds – removes some of the recent tail risk from macro hedging strategies. It’s not a stimulus, but it tempers disruption, and that reduction in surprise probability can be tactically beneficial.

In short, what we’re dealing with is a stretched policy runway, calmer financial conditions, limited but still present inflation, and no meaningful easing impulse yet coming through from trade policy. The message isn’t about stability returning, but rather a reprieve from urgency. And in derivative terms, that reprieve presents manageable drift rather than signals of violent repricing.

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The USD/JPY has risen to approximately 148.00, gaining nearly 2% due to a US-China tariff reduction sparking risk appetite. Both countries agreed on a 90-day tariff reduction, with the US cutting duties to 30% and China lowering them to 10%, enhancing the US Dollar’s appeal.

This trade truce has led to a surge in risky assets, impacting safe-haven currencies like the Japanese yen. A sharp increase in US bond yields, with the 10-year US Treasury yield reaching 4.45%, has lifted the US Dollar Index (DXY) by over 1.25% to 101.74, its highest in a month.

Japan’s Current Account Surplus

Japan’s March current account surplus exceeded expectations at JPY 2.723 trillion. However, Japanese investors sold foreign bonds, reducing overseas exposure in March amid market volatility, reflecting cautious sentiment despite favourable trade news.

Technically, USD/JPY is bullish, trading near 148.00, supported by a 20-day Simple Moving Average. Resistance is around 149.56 to 150.37, with support from 145.69 to 146.45. Indicators such as RSI and MACD suggest neutral to bullish conditions, with prospectively deeper corrections below 146.30 or further gains above 149.60.

What we’re seeing here is a pronounced bullish trend in USD/JPY, driven not by one isolated event, but rather a series of clear market reactions that have come together recently. Central to the sudden rise has been the thaw in trade tensions between the US and China, following the announcement of a 90-day duty reduction. The lowered tariff rates—30% from the US and 10% from China—have not just improved investor sentiment generally, they’ve directly increased appetite for yield-bearing and risk-sensitive assets. That, in turn, has pressured traditional safe havens like the yen.

Impact of Us Treasury Yields

This rise in appetite for risk has also coincided with a steep rise in US Treasury yields. When the 10-year yield pushes up towards 4.45%, capital tends to favour the dollar—not just from yield-chasing flows, but also as a bid for relative stability in dollar-denominated assets. As bond markets reprice expectations around interest rates, the surge in DXY by over 1.25% shouldn’t come as a surprise. The dollar is now sitting at its highest level in a month, reflecting this very repricing.

Meanwhile, March data out of Japan showed an unexpectedly high current account surplus. But despite this strong trade position, Japanese investors became net sellers of foreign bonds. That move is telling—it suggests risk-off positioning locally, mostly driven by market shakiness rather than economic fundamentals or trade balances. So, even though domestic figures were generally supportive, capital flows pointed in a different direction.

Technically, there’s more to be aware of. The currency pair remains well supported on the charts. It’s currently holding above its 20-day Simple Moving Average, which tends to act as a dynamic floor in upward movements. Resistance levels between 149.56 and 150.37 will likely play a large role in shaping near-term behaviour. If price can break and close consistently above the 149.60 mark, there’s room for extension towards areas not seen in several months. Conversely, a fall through 146.30 could mark the beginning of a steeper retracement, particularly if Treasury yields lose ground.

Indicators like the MACD are still showing momentum favouring the upside, though actual turnarounds can happen quickly in any technical pause or risk-off move globally. RSI has stayed within range—neither overbought nor oversold—but has started to nudge upward again, adding to the directional bias in favour of the dollar.

Given the present configuration, it’s not enough just to monitor price levels. One has to follow fixed income markets just as closely. The bond market has effectively become the weather vane here, and rapid changes in real yields are being mirrored almost tick-for-tick in USD/JPY pricing.

In the weeks ahead, with global sentiment shifting in response to both macro policy action and trade dynamics, sensitivity to yield differentials and capital flow movements will both intensify. That’s why we think watching auction results, Treasury spreads and even BOJ policy messaging—not just headline rates—can offer the edge. Short-term price momentum remains tilted upward, but the risk of volatility breaking that pattern increases if support levels start to slip in tandem with falling yields or deteriorating global sentiment.

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