Kevin Hassett noted on Fox News that the U.S. prioritises Japan and South Korea for tariff discussions, with reciprocal tariffs expected before negotiations commence. This tactic may create unease in the market.
The tariffs will come into effect shortly after midnight, with talks involving South Korean trade officials appearing hurried. Additionally, previous statements suggested that negotiations with Japan may extend over several months.
Speculation About Tariff Suspension
There are speculations regarding a possible temporary suspension of tariffs. However, the market seems to be banking on this possibility, which adds layers of uncertainty and risk.
What this means, in plain terms, is that tariff negotiations are being used as a tool in trade diplomacy, with timing playing a deliberate role. Hassett’s comment implies that the U.S. is expecting a give-and-take arrangement from Japan and South Korea—not after resolution, but upfront, even before discussions properly begin. The implication here is that Washington is setting stiffer ground rules than past rounds of trade talks.
The suddenness of implementation—just after midnight—has spurred speculation that this may be less a punitive step and more a bargaining tactic. Yet the rushed nature of meetings with South Korean officials suggests that, behind the scenes, there’s more concern than the official statements let on. With trade relations, weeks of preparation are often the norm; last-minute talks imply reaction rather than coordination.
Investor Reactions and Market Dynamics
Investors in derivatives will already have taken note of these developments. When speculation swirls around waiver possibilities—as it has done here—market pricing adjusts rapidly. Many are likely already pricing in at least a partial delay or easing of the measures. That, inherently, creates vulnerability for positions built on that assumption. If the tariffs proceed with no pause, the adjustment will be sharp and immediate.
Meanwhile, indications from Tokyo suggest a slower timeline for talks, stretching over the coming months. This introduces an asymmetry worth watching: one side forced into rapid decisions; another with the cushion of time. That divergence in speed can lead to unexpected shifts in stance, or even rollback of early positions. In our experience, such mismatches in urgency often produce win-lose scenarios, rather than mutual stability.
We view the present build-up not just in terms of headline risk, but also as a signal of pricing pressure in the short-term contracts. Volatility premium is back in focus, specifically around those instruments sensitive to cross-border manufacturing and metals exposure. Should there be hints of a walkback—or confirmation of strict implementation—we would expect repricing in the options dome, particularly in nearer-dated maturities.
Traders holding delta-exposed positions on yen or won-linked instruments might already be adjusting hedges, especially if liquidity begins thinning ahead of anticipated announcements. Misjudging the exact hour of news can leave portfolios exposed on execution. Several past episodes demonstrate that even five-minute windows can lead to full-point moves, particularly in high-leverage environments.
What we are seeing here is a real-time repositioning exercise, not just a reactive shakeout. Market participants confident of a temporary delay are implicitly absorbing risk others are shedding. If the assumption fails, those bets face direct reversal. It’s a dynamic that tends to resolve quickly, and often with casualties.
Watching implied vol metrics in yen futures or regional ETFs can offer a snapshot of sentiment. For now, these remain elevated but contained. If they start climbing without news, that often signals internal concern—traders anticipating a surprise rather than reacting to it.
Lastly, one behavioural point: when negotiations stretch over months—as is now suggested in one capital—adjustments in macro exposure begin leaking into daily forex and commodity flows. It’s rarely a linear move. Traders would do well to remember that fast starts typically don’t align with slow finishes.
