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 Monday around 149.11. It then kept rising through the end of last month.
The move was tied to the “Takaichi trade.” Markets expected policy to stay loose and keep the yen available for carry trades. That view started to fade late 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 moving its balance sheet and long-term interest rates back toward more normal settings. In March 2024, it changed its policy framework.
From March 2024, the BoJ shifted the focus back to short-term rates as its main policy tool, while allowing markets to guide long-term rates. The Bank initially planned to slow monthly bond purchases by another JPY 400 bln each quarter starting in July 2024.
Rabobank maintains a 12‑month USD/JPY forecast of 145, which implies a gradual yen recovery. This view also reflects rising JGB yields, stronger foreign demand, and expectations of more BoJ rate hikes this year.
Markets are now rethinking the assumptions that pushed the dollar higher against the yen in late 2025. The so-called “Takaichi trade,” which began after the LDP leadership election in October last year, lifted USD/JPY from around 147.70. We still expect a gradual yen recovery toward 145 over the next 12 months.
Implications For Markets And Positioning
This shift reflects a more confident Bank of Japan (BoJ). After the rate hike late last year, Governor Ueda has stayed hawkish. This stance is now supported by Japan’s latest national core CPI for January, which came in at 2.4% and beat expectations. Early reports from the current “shunto” wage talks point to average pay increases above 4.5%, which also supports the case for more BoJ rate hikes this year.
This is part of the broader policy normalization that began in March 2024. The BoJ moved back to targeting short-term rates and let markets guide long-term yields. Since then, the yield gap between US 10-year Treasuries and Japan’s 10-year JGBs has already narrowed by 25 basis points since the start of the year. That makes the yen more attractive to hold.
On the other side of the pair, expectations for the US Federal Reserve are easing. Recent US data, including the latest Non-Farm Payrolls report showing job growth slowing to 155,000, has shifted Fed funds futures to price a 60% chance of a rate cut by June. This policy divergence adds a strong headwind for USD/JPY.
For derivative traders, this backdrop points to positioning for a lower USD/JPY in the weeks and months ahead. Possible approaches include buying JPY calls or using bearish put spreads on USD/JPY to benefit from a downside move. Another option is selling out-of-the-money USD calls to collect premium while betting against a strong rise in the dollar.
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