For 20-plus years now, U.S. officials have been prodding Japan to engineer a stronger yen. It never occurred to Tokyo, though, that Washington might be willing to crash the dollar to do it.
For 20-plus years now, U.S. officials have been prodding Japan to engineer a stronger yen. It never occurred to Tokyo, though, that Washington might be willing to crash the dollar to do it.
Three months into the Donald Trump 2.0 presidency, the administration’s trade war, policy chaos and general dysfunction have investors fleeing the dollar. A “Trump trade” gone bad has the dollar down nearly 10% versus the yen and euro.
Adding to the disorientation, the plunge appears to be by design. President Trump’s team believes a weaker exchange rate will offset the effects of the tariffs. That, and the Federal Reserve slashing rates.
But count the ways Trump’s efforts to sabotage the global reserve currency are backfiring. The resulting turmoil in stock and bond markets has triggered a sell-America dynamic in global markets, one taking on a life of its own.
The disorder is also upending Japan’s year in unpredictable ways. For one thing, Trump’s tariffs have markets betting on stagflation in Asia’s second-biggest economy. These taxes on goods will both reduce demand for Japanese exports and boost global inflation.
This has the Bank of Japan stepping away from plans to tighten next week. For 24 months now, BOJ Governor Kazuo Ueda has been plotting an escape from 25 years of zero interest rates and quantitative easing. And succeeding.
In July 2024, Team Ueda managed to get the benchmark rate to 0.25%. In January, the BOJ reached a 17-year high of 0.5%. At its April 30-May 1 policy meeting, the BOJ was widely expected to boost rates to 0.75%.
Yet Trump’s one-man tariff arms race will keep the BOJ on hold. What’s more, the collateral damage from his 145% tax on China, 25% levy on the auto industry and tariffs on steel and aluminium may push Japanese rates back to zero.
