For years, U.S. President Donald Trump has leveled accusations against Japan regarding “unfair trade practices” — a critique that traces back to his tenure as a real estate mogul. In March, Trump once more targeted Japan, claiming that Tokyo devalued its currency to secure an unjust trade benefit. “I’ve called the leaders of Japan to convey that the ongoing reduction and devaluation of your currency cannot persist,” he stated. Then–Prime Minister Shigeru Ishiba reportedly informed Japan’s parliament that the country was not engaging in a so-called “currency devaluation policy” — a stance that his predecessors, including the late Shinzo Abe, had emphasized during their discussions with Trump. As Abe’s protégé, Sanae Takaichi, prepares to lead the world’s fourth-largest economy, similar concerns may be resurfacing. Takaichi has been extensively characterized as a proponent of “Abenomics,” the economic framework established by Abe, which advocated for a lenient monetary policy, increased fiscal expenditure, and structural reforms. In the previous year’s leadership contest of the ruling Liberal Democratic Party, she expressed her disapproval of the Bank of Japan’s strategy to increase interest rates, which would consequently bolster the yen.

Markets have reacted with the so-called “Takaichi trade,” driving the Nikkei 225 to unprecedented levels and causing the yen to depreciate beyond the 150 threshold against the dollar. The 150-yen level holds significant psychological and political implications. Japanese officials have historically issued warnings or taken action in currency markets when the yen depreciates beyond that threshold, as this escalation increases import expenses and exacerbates the cost-of-living challenges for households. A depreciated yen brings back one of Trump’s preferred arguments: that Japan gains from a currency that is undervalued, to the detriment of the United States. However, analysts suggest that Takaichi is expected to navigate economic policies with caution to prevent any strain in relations with Washington. Since the beginning of the year, the exchange rate between the U.S. dollar and yen has remained largely stable, Hirofumi Suzuki, remarked, emphasizing that the yen has not experienced a downward trend. “While the so‑called ‘Takaichi trade’ is currently tilted toward yen weakness in its early phase, it is not expected to persist for more than about a month and is regarded as temporary at this stage,” he stated.

The U.S. dollar is currently perceived as ‘extremely overvalued’, with projections suggesting that the dollar-yen exchange rate could reach 100 within the next few years. It would not be unexpected for the dollar-yen exchange rate to reach 100 within the next few years. Strategist Suzuki indicated that no impact on relations is anticipated at this time. However, should the yen’s weakness endure into the medium and long term, one would anticipate an impact on U.S.–Japan trade relations, he stated. Takahide Kiuchi, asserts that the Trump administration is increasingly cautious regarding the yen’s depreciation. “While I do not believe this will nullify the Japan-U.S. agreement, it is possible that the Trump administration will ask Japan to correct the yen’s weakness,” Kiuchi noted. A weak yen benefits exporters, who constitute a significant segment of the Nikkei 225 and play a crucial role in driving Japanese GDP growth. However, it also leads to higher import prices, potentially contributing to increased imported inflation within the nation. In the previous year, Japan’s currency reached a 34-year low of 161.96 against the dollar, despite multiple interventions by the authorities. Prior to Takaichi’s ascension to the presidency of the LDP, the yen experienced a strengthening of approximately 6% against the dollar since the beginning of the year, reaching a value of 147.44. As of Thursday, it has depreciated to 152, thereby reducing its year-to-date increase to 2.77%.

Norihiko Yamaguchi, indicated that apprehensions regarding imported inflation will prevent Takaichi from implementing policies that would devalue the yen. Consequently, he believes that the potential prime minister must adopt a “more realistic” approach to her policy stance. Despite Takaichi’s opposition to rate hikes, Yamaguchi anticipates that the BOJ will implement a rate increase in December and another in mid-2026. She believes that market pressures, particularly the depreciation of the yen, will compel her to acquiesce to some rate hikes. Experts indicated that rate hikes will be necessary to address inflation, which has exceeded the BOJ’s 2% target for more than three consecutive years. Japan’s most recent headline inflation rate for August was recorded at 2.7%. “Inflation will decide whether or not she has a job in 12 months,” William Pesek. Jesper Koll, asserting that Takaichi will ultimately require a more robust yen to mitigate inflation. “The loss of people’s purchasing power is the primary reason for the LDP’s unpopularity.”