After Takaichi won the LDP leadership election in early October last year, USD/JPY jumped. It closed the prior week near 147.70 and opened on the Monday around 149.11, then rose until the end of last month.
The rise was linked to the “Takaichi trade”, based on expectations that policy would keep the yen used for carry trades. That view eased by the end of last year when the Bank of Japan raised rates, and Governor Ueda has kept a hawkish tone.
Policy Normalization And Rate Focus
The Bank of Japan has been letting its balance sheet and long-term interest rates move towards normal settings. In March 2024, it changed its policy framework.
From March 2024, the focus returned to short-term rates as the main policy tool, while markets were intended to guide long-term rates. The Bank initially planned to slow monthly bond purchases by a further JPY 400 bln each quarter from July 2024.
Rabobank keeps a 12‑month USD/JPY forecast of 145, implying gradual yen recovery. The view also reflects rising JGB yields, improving foreign demand, and expectations of more BoJ rate hikes this year.
The assumptions that drove the dollar higher against the yen in late 2025 are being revisited by the market. The so-called ‘Takaichi trade,’ which began after the LDP leadership election in October last year, pushed USD/JPY up from around 147.70. We maintain the view that a gradual yen recovery toward 145 is likely over the next 12 months.
Implications For Markets And Positioning
This shift comes as the Bank of Japan (BoJ) shows a more confident stance. Following the rate hike late last year, Governor Ueda has maintained a hawkish tone, a position now reinforced by Japan’s latest national core CPI for January, which came in at 2.4%, beating expectations. Preliminary reports from the current ‘shunto’ wage negotiations, suggesting average pay increases over 4.5%, further support the case for more BoJ rate hikes this year.
This is part of a broader normalization of policy that started back in March 2024, when the BoJ began focusing on short-term rates and letting markets guide long-term yields. As a result, the yield differential between US 10-year Treasuries and Japanese 10-year JGBs has already narrowed by 25 basis points since the start of the year. This makes holding yen more attractive.
On the other side of the currency pair, expectations for the US Federal Reserve are softening. Recent US data, such as the latest Non-Farm Payrolls report showing job growth moderating to 155,000, has shifted Fed funds futures to price in a 60% chance of a rate cut by June. This divergence in central bank policy creates a strong headwind for the USD/JPY pair.
For derivative traders, this environment suggests positioning for a lower USD/JPY in the coming weeks and months. This could involve buying JPY calls or establishing bearish put spreads on the USD/JPY pair to capitalize on the expected downward trend. Selling out-of-the-money USD calls could also be a viable strategy to collect premium while betting against significant dollar strength.
