The Yen returned to the Takaichi trade
|- The dollar resumed its growth after the lawsuit against the Fed chairman.
- Rumours of early elections in Japan drove up USDJPY quotes.
‘We’re screwed!’ -- that’s how Donald Trump described the possible Supreme Court’s ruling against his tariffs. The US will have to return hundreds of billions of dollars, not to mention the cancellation of investments that other countries intended to make in exchange for lower import duties.
In fact, the White House screwed up a little earlier when the Justice Department informed Jerome Powell about the lawsuit. The Fed chairman and the markets perceive this event as a factor putting pressure on the central bank. Lowering rates under pressure from the president could lead to uncontrolled inflation, as has occurred in several emerging market countries in the past. Investors will demand a higher risk premium on bonds. Higher Treasury yields will weigh on the economy.
The greenback is poised to benefit from both the Supreme Court’s repeal of tariffs and the lawsuit against Jerome Powell. The latter led to a rise in EURUSD and allowed the euro to be sold at a higher price. The refund of previously paid fees could be seen as a fiscal stimulus that will boost the US economy.
The strength of the dollar was one of the reasons for the USDJPY’s surge to its highest level since July 2024. The second factor was rumours of early elections in Japan. The new prime minister’s ratings are high, and she intends to strengthen the Liberal Democratic Party’s position in parliament. As a result, investors are returning to a so-called ‘Takaichi trade’ with stocks rising while the yen is weakening.
The USDJPY rally is forcing the government to return to verbal interventions. Japanese Finance Minister Satsuki Katayama expressed concern about the speculative nature of the yen’s weakening at a meeting with her American counterpart. She said that Scott Bessent is also unhappy with what is happening on Forex.
Now the markets are trying to determine the levels of Tokyo’s potential intervention in the international currency market. In 2024, it resorted to currency interventions four times near the 160 level, a very close call with 159 now.
Gold took advantage of the growing distrust of fiat currencies. It reached a new record high. As a result, CME changed its margin calculation methodology to reduce volatility. Its increase at the end of 2025 caused precious metals to retreat.
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