Central Banks Start Buying Crypto: What's Next?

Key takeaways

Intraday K-shaped performance in FX market

Fig. 1: 1-day rolling performance of the US dollar against major currencies as of 13 Jan 2026

USD/JPY movements are moving away from rate differentials, with politics as the main driver

2-year & 10-year US Treasury/JGB yield spreads major trends with USD/JPY as of 13 Jan 2026

USD/JPY is trading inside the intervention-risk zone ahead of today’s US CPI

Fig. 3: USD/JPY medium-term & major trends as of 13 Jan 2026

Short-term momentum supports further USD/JPY strength

Fig. 4: USD/JPY minor trend as of 13 Jan 2026

Source: marketpulse

The "Takaichi Trade": Why Election News Is Sinking the Yen

The Bank of Japan (BoJ) started 2025 with a hawkish stance, raising interest rates to their highest level in three decades and signaling more hikes could follow. However, this failed to lift the Japanese yen, as traders sought more specific timing for the next policy move.

The yen's situation worsened dramatically after Kyodo News reported that Prime Minister Sanae Takaichi is considering a snap election in February. The news sent the currency into a steep decline, reaching lows not seen since July 2024.

With a 70% approval rating, Takaichi may be positioning for a decisive victory to push through her spending plans, which would further increase Japan's already large government debt. This prospect has triggered what analysts are calling the "Takaichi trade": a falling yen accompanied by soaring stock prices and Japanese Government Bond (JGB) yields. This trend could intensify if the ruling Liberal Democratic Party appears likely to secure a single-party majority.

Figure 1: The "Takaichi trade" in action, showing the correlated rise of USD/JPY, the Nikkei 225, and 10-year JGB yields from late 2025 into early 2026.

Compounding the pressure on the yen is the market expectation that the BoJ will be reluctant to tighten monetary policy ahead of an election. This suggests the next interest rate hike may not come until after the spring wage negotiations, and only if they result in substantial salary increases.

Intervention Warnings Return as USD/JPY Nears 160

As the USD/JPY exchange rate pushes back toward the psychological 160.00 level, talk of government intervention is resurfacing. Finance Minister Satsuki Katayama expressed concern over the "one-way weakening of the yen" during a meeting with US Treasury Secretary Scott Bessent, who shared her concerns and called for the BoJ to raise interest rates.

This follows Katayama's warning in December, when USD/JPY crossed 157.00, that Japan has a "free hand" to act. Her recent meeting with Bessent may have been to secure tacit approval from the U.S., making direct intervention near the 160.00 zone a more credible threat.

Despite these warnings, the yen has continued its slide, raising questions about the potential effectiveness of intervention. In 2024, Japanese authorities intervened four times to support the currency.

• April 2024: Two interventions provided only temporary relief before the yen resumed its decline.

• July 2024: Two more interventions had a more lasting impact, driving USD/JPY from around 162.00 to below 140.00 by September. This success was attributed to the intervention being followed by a BoJ rate hike.

Figure 2: A historical view of USD/JPY shows four major intervention episodes in 2024, which temporarily reversed the yen's decline, contrasting with no interventions in 2025.

Will a Snap Election Delay the Next BoJ Rate Hike?

Given Takaichi's agenda of increased spending, any currency intervention on its own may have a limited and short-lived effect. A lasting reversal for the yen likely requires a supporting rate hike from the BoJ, especially since a weaker currency could fuel inflation through higher export costs and ultimately harm economic growth.

However, financial markets are not convinced a rate hike is imminent. According to Japan's Overnight Index Swaps (OIS) market, a 25-basis-point hike is not fully priced in until September. If the BoJ holds off on tightening policy, intervention alone may not be enough to stop the yen's decline.

Figure 3: Market expectations (blue line) project a much faster pace of BoJ rate hikes in 2026 than the central bank's actual policy path (orange line) has delivered so far.

Without a policy shift, yields on Japanese debt will likely continue to rise as fewer investors are willing to finance the nation's growing debt. While Japanese equities have rallied on the prospect of fiscal stimulus, this may not last. Eventually, concerns about inflation and an economic slowdown could lead investors to sell off Japanese assets in a "Sell Japan" event.

Ultimately, unless the Ministry of Finance intervenes and the Bank of Japan follows with a rate hike, the yen is likely to extend its downtrend, with USD/JPY potentially trading above 160.00 soon.

Technical Outlook: USD/JPY Eyes Further Gains

From a technical perspective, the USD/JPY pair is currently challenging the 158.90 resistance level, which marks the peak from January 10, 2025. A decisive close above this level could open the door to a test of the 160.00 mark.

The broader uptrend, defined by the trendline drawn from the September 17 low, remains firmly in place. If the pair breaks above 160.00, the next major target would be the July 3, 2024 high of around 162.00. For the bullish trend to be questioned, bears would need to force a decisive break below the 154.55 support zone.

Figure 4: The daily chart for USD/JPY shows a clear uptrend, with the price currently testing key resistance levels after a period of consolidation.

Top figures from global central banks and Wall Street have rallied in support of Federal Reserve Chair Jerome Powell after the Trump administration threatened him with a criminal indictment. Powell characterized the move as a form of intimidation, sparking a defense from financial leaders who underscored the critical importance of the Fed's independence.

The wave of support highlights the relationships Powell has cultivated and the central bank's vital role in global financial markets. It follows pushback from Republican lawmakers, including members of the Senate Banking Committee, who could block the nomination of a successor to Powell when his term ends in May.

Renovation Probe Sparks Indictment Threat

The controversy escalated after Powell revealed on Sunday that the U.S. Justice Department had issued subpoenas concerning his testimony to Congress about the $2.5 billion renovation of the Federal Reserve's Washington headquarters. Powell stated that the investigation was a pretext designed to pressure the central bank into cutting interest rates, a long-standing demand from President Trump.

The Federal Reserve's headquarters in Washington, the subject of a controversial renovation probe.

Global Central Banks Issue Joint Defense

In a rare joint statement, the heads of 11 of the world's most influential central banks expressed their backing for the Fed chief. "We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell," the statement declared.

Signatories included leaders from the European Central Bank, the Bank of England, and the Bank of Canada, along with the central banks of Sweden, Denmark, Switzerland, Australia, South Korea, Brazil, and France. Officials from the Bank for International Settlements also signed on.

The group affirmed that Powell has acted with integrity and emphasized that central bank independence is a cornerstone of economic stability. "The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve," they wrote.

Global central bank governors have increasingly coordinated to support financial stability.

Wall Street Warns of "Reverse Consequences"

Leading Wall Street executives also voiced their concerns, warning that political pressure on the Fed could backfire.

JPMorgan CEO Jamie Dimon told reporters the probe "is probably not a great idea," predicting it could have "the reverse consequences of raising inflation expectations and probably increase rates over time."

BNY CEO Robin Vince echoed this sentiment. "Independent central banks with the ability to independently set monetary policy in the long-term interests of the nation is a pretty well-established thing," he said. Vince cautioned against actions that could shake confidence in the Fed's independence, which might ultimately push interest rates higher.

Political Pressure vs. Fed Independence

Independence from government has long been a foundational principle of modern central banking. However, President Trump has repeatedly broken with this tradition, publicly demanding lower interest rates and pressuring policymakers.

On Tuesday, Trump once again called on Powell to lower interest rates "meaningfully," following a government report that showed consumer prices rose 2.7% in December from the previous year.

Central bankers and analysts fear that political influence over the Fed could erode trust in its commitment to its inflation target, potentially leading to higher inflation and volatility in global financial markets. There are also concerns that a politicized Fed might be reluctant to provide the crucial dollar backstop that helps calm international markets during periods of stress. Such a scenario would likely rattle U.S. markets and export instability worldwide, making it harder for other central banks to maintain price stability.

Despite the political drama, traders are still largely betting that persistent inflation will keep the Fed on hold until at least June.

As tax season approaches, many filers could see larger refunds this year due to significant 2025 tax changes. This potential windfall isn't just good news for individual households; experts say it could have a noticeable impact on the broader economy.

The IRS will begin processing individual returns on January 26. The expected increase in refunds stems from President Donald Trump's "big beautiful bill," which introduced several tax-cutting provisions for 2025. Because the IRS did not update tax withholding tables to reflect these changes, many workers' paychecks remained the same throughout the year. The result is that the benefits of the tax cuts will largely be realized when filing returns in 2026.

President Trump projected that 2026 would be the "largest tax refund season of all time," and many tax experts and analysts agree that bigger refunds are likely. However, the final amount owed or refunded will depend on an individual's specific financial situation and how much tax they paid during the year.

Key 2025 Tax Changes Driving Larger Refunds

The legislation signed by Trump reduced individual income taxes by an estimated $144 billion in 2025, according to the Tax Foundation. Several key provisions are behind this change:

• A larger standard deduction

• A more generous maximum child tax credit

• A higher limit for the state and local tax (SALT) deduction

• A new $6,000 tax break for seniors

• New deductions for auto loan interest, tip income, and overtime pay

Heather Berger, a U.S. economist at Morgan Stanley, stated on a January 2 podcast that these changes are expected to "increase refunds by 15% to 20% on average." For context, the average refund for individual filers was $3,052 as of October 17, 2025, with the IRS issuing about 102 million refunds by that date.

The Potential Impact on Consumer Spending

Experts are closely watching to see what Americans will do with this extra cash, as it could temporarily boost consumer spending.

"Our expectation is it would be a positive for consumption," National Economic Council Director Kevin Hassett told CNBC on January 9.

However, spending behavior often depends on income levels. A note from Piper Sandler on October 31 indicated that households earning between $30,000 and $60,000 typically spend about 30% of their refunds on discretionary purchases. In contrast, households earning $100,000 or more spend only about 15%.

Furthermore, a National Retail Federation survey of roughly 8,600 adults in 2025 found that 82% of taxpayers expecting a refund planned to use the money for paying off debt or for savings. Morgan Stanley's Heather Berger also noted that other economic factors, such as inflation from tariffs or higher health insurance premiums under the Affordable Care Act, could influence spending habits.

Could Bigger Refunds Fuel Inflation?

While increased spending can stimulate the economy, some analysts worry that a surge in consumer demand could also create inflationary pressure.

Jonathan Parker, an economist at the Massachusetts Institute of Technology who has researched consumer spending during stimulus cycles, said bigger refunds "could easily be inflationary." He told CNBC that the stimulus checks issued during the Covid-19 pandemic were "certainly correlated" with higher inflation and were a "contributing factor" to the subsequent price boom. The consumer price index peaked at a 9.1% year-over-year increase in June 2022, the fastest rate since 1981.

Former Treasury Secretary Janet Yellen acknowledged in January 2025 that stimulus spending may have contributed "a little bit" to inflation but also pointed to "huge supply chain problems" as a major cause.

When asked about the potential inflationary effects of larger refunds in 2026, Kevin Hassett expressed little concern. "We're not really worried about the inflationary effects of that because we [have] got so much supply coming online again," he said.

The closely-watched consumer price index rose 2.7% in the year to December, in line with the previous month, according to official data published on Tuesday morning, ahead of a speech by the US president on the economy.

Source: Theguardian

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Source: investinglive