The Trump Administration's USD Policy Emerges

[ChapInTokyo]

I found this article 【為替】見えてきたトランプ政権の米ドル政策 by Monex' s chief consultant on foreign exchange quite interesting.



Here is an English translation of the article courtesy of Microsoft Copilot:

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**[Forex] The Trump Administration's USD Policy Emerges**

**Yoshida Hisashi's Forex Daily**

**2025/02/14**

Yoshida Hisashi, Chief FX Consultant at Monex Securities and Dean of Monex University FX, has shared insights on the emerging USD policy under the Trump administration.

**Trump Administration’s USD Policy**

President Trump has previously stated, "The record-high USD and yen depreciation is a disaster for U.S. manufacturing." It seems we are gradually seeing how President Trump is reconciling this with the traditional stance that "a strong USD is in the national interest."

**Bessent, Treasury Secretary, Opposes Beggar-Thy-Neighbor Policy**

Bessent, the Treasury Secretary responsible for currency policy under the Trump administration, stated in a recent interview, "We want a strong USD. What we do not want is other countries weakening their currencies or manipulating trade. A free trade system does not exist. Exchange rates may be a factor, and some countries are suppressing interest rates."

The "beggar-thy-neighbor policy," as Bessent mentions, refers to tactics where countries devalue their own currency to gain a competitive edge in exports, aiming for quick economic recovery, which is considered a violation of international rules. Bessent's statement indicates a rejection of such policies.

**Rhetoric for Balancing a "Strong USD" Policy**

Historically, there have been instances where the U.S. government maintained the stance that "a strong USD is in the national interest" while secretly desiring a weaker USD. For example, during the Clinton administration in 1993, addressing trade imbalances was prioritized, potentially aiming for a weaker USD. Speaker Foley stated, "We desire a strong yen," as a counter to the question of preferring a weak USD.

In the first U.S.-Japan summit in April 1993, President Clinton himself emphasized that a stronger yen would be effective in addressing trade imbalances. Consequently, from 125 yen/USD in January 1993, the USD/yen rate reached 80 yen by 1995, marking a significant yen appreciation. By 1998, the rate returned to near 150 yen/USD.

**Balancing a Long-Standing Strong USD Policy**

During the Rubin tenure, he consistently stated, "a strong USD is in the national interest." As the USD appreciated beyond 130 yen in November 1997, Japan intervened to curb the yen's depreciation. Rubin's repeated statement served as a justification for USD purchases, yet he acknowledged, "a strong USD is in the national interest, but it has been strong for quite some time," hinting at controlling excessive USD strength.

The Trump administration might follow similar rhetoric to balance the policy of a "strong USD" while possibly preferring a weaker USD from a protectionist standpoint, either by calling for appreciation of trading partner currencies or clarifying that excessively strong USD is not desirable.

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I hope this helps! If you have any questions or need further assistance, feel free to ask.

[TokyoWart]

He (Yoshida) seems to be ignoring the effect of tariffs on exchange rates. If the US becomes more aggressive in implementing tariffs then that is expected to make the dollar stronger against other currencies while also making the non-US currency weaker. For instance, the 2018-19 tariffs are estimated to have increased the USD by 1% and lowered the renminbi by 2%:

https://www.sciencedirect.com/science/a ... 0624000020

[ChapInTokyo]

He (Yoshida) seems to be ignoring the effect of tariffs on exchange rates. If the US becomes more aggressive in implementing tariffs then that is expected to make the dollar stronger against other currencies while also making the non-US currency weaker. For instance, the 2018-19 tariffs are estimated to have increased the USD by 1% and lowered the renminbi by 2%:

https://www.sciencedirect.com/science/a ... 0624000020

This was an interesting paper. I had no idea that the US tariffs might have the effect of strengthening the dollar and weakening the trading partners' currencies.

With regard to the Yoshida blog though, I think that his point is that the US might try to force its trading partners (like Japan) to strengthen its currency by setting higher domestic interest rates. This is implied in this part of his article:

Bessent, the Treasury Secretary responsible for currency policy under the Trump administration, stated in a recent interview, "We want a strong USD. What we do not want is other countries weakening their currencies or manipulating trade. A free trade system does not exist. Exchange rates may be a factor, and some countries are suppressing interest rates."

So if US puts pressure on Japan to increase its interest rates higher and quicker than the BOJ wants, the damage it could cause to Japanese industry and trade, as well as making the servicing costs of government debt could be substantial. This would I assume be even more so if the US puts tariffs on Japanese goods, thus putting downward pressure on the value of the yen against the dollar.