Trump Kicks Crypto Policy into Gear and Hammers Nail in US CBDC Coffin

Cryptocurrency

Summary:

New executive order cites concerns that US CBDC threatens financial system stability.

Just four days after his inauguration, US President Donald Trump is starting to make good on his promises to the crypto market.

After heading into office with a brazen husband-and-wife double act ‘memecoin’ issuance, there was little doubt that Trump would fervently back the crypto market. He followed through on that signal, with an executive order entitled ‘Strengthening American Leadership in Digital Financial Technology’ on Thursday.

As is the case with most executive orders, it is light on firm policy detail. However, it does make a number of important promises.

First, it promises to promote access to public blockchain networks. At present, many institutions, particularly banks, find it difficult to interact with public blockchains because their open nature make them hard to draw regulatory perimeters around. When anyone can participate in a network, know-your-customer checks becomes all but impossible to enforce.

This, combined with the Securities and Exchange Commission’s withdrawal of its controversial Staff Accounting Bulletin 121 (which made crypto a distinct asset class, requiring banks to treat cryptoassets held in custody as a liability and hold an asset against them) opens the door for traditional financial institutions to begin offering crypto services to their clients.

The SEC has also established a crypto taskforce, headed by the well-respected commissioner Hester Peirce. The Commodities and Futures Trading Commission has yet to establish its own cryptoasset regulatory body despite the fact that key legislation presently in Congress would place crypto markets under the CFTC’s supervision.

The convergence of cryptoassets and traditional finance – though contrary to crypto purists’ anti-bank ethos – is likely to provide the boost to crypto-markets that many predicted following Trump’s election victory in 2024.

Second, Trump’s executive order highlights ‘protecting and promoting fair and open access to banking services’, which is a veiled allusion to ending the practice of crypto debanking. Many in the crypto industry have found it difficult to secure banking relationships with reputable US institutions, typically due to banks’ risk management frameworks. How exactly the Trump administration intends to see these rewritten remains to be seen, but it is safe to assume that crypto and traditional banking’s relationship will grow closer.

Third, the executive order hammers a final nail into the coffin of a US central bank digital currency, citing concerns that it would ‘threaten the stability of the financial system’. This assertion has mostly been discarded by the central banks of the rest of the world, whether or not they intend to issue CBDCs. It is mostly asserted by banks that perceive themselves as at risk from disruption by CBDCs.

A likely future for CBDCs and stablecoins

It is also interesting to note that the executive order’s definition of CBDC (‘a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank’) is so broad as to include not only retail and wholesale CBDCs, but also FedWire, the Federal Reserve System’s own wholesale payments service.

While this seems to preclude wholesale CBDC, the Fed may find a way to proceed with finding a means of representing central bank money digitally for use in financial markets or for interoperation with foreign central banks to improve cross-border payments. Such projects may find it beneficial to rid the label of ‘CBDC’ to ensure they are palatable to US authorities, but the legislative efforts so far (the CBDC Anti-Surveillance State Act) are primarily focused on retail CBDCs.

On the other hand, the executive order’s mention of stablecoins as a means of promoting and protecting the dollar’s sovereignty might suggest that the new administration will back private sector efforts to ensure that tokenised cash settlement and cross-border payments is carried out by stablecoins.

If so, that could result in a major divergence in the US from international efforts to bring central bank money onto unified ledgers. This risks seriously devaluing these projects since the dollar holds such an enormously important role in financial markets. For the Bank for International Settlements’ Project Agorá and its ilk to proceed without the dollar would lessen their value. It would also require a major pivot in their design principles to incorporate stablecoins instead of US central bank money.

What Trump 2.0 means for crypto

Trump’s pro-crypto stance will be divisive. Even among fans of the asset class, the issuance of the Trump memecoin (while retaining 80% of the supply) has drawn criticism as a brazen cash grab typifying the worst form of profiteering opportunism that has given the industry a bad name.

The executive order also revives Trump’s campaign promise of a ‘strategic bitcoin reserve’, the main purpose of which appears to be the enrichment of bitcoin holders.

But the removal of the obstructive approach that characterised Joe Biden’s administration (not to mention the much-criticised former SEC chair Gary Gensler’s ‘regulation by enforcement’ attitude to crypto rule-making) creates an environment where cryptoassets and the businesses that serve them can thrive in the US. The EU enjoyed a brief period of relative appeal thanks to the clarity of its Markets in Crypto-Assets Regulation, but the US, already home to the lion’s share of the industry’s talent, is ready to kick into gear.

Source:Lewis McLellan

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Forex

Economic

According to some forecasts, the dollar will surrender 10% of its share of global foreign exchange reserves over the next 10 years. If that happens, 10 different currencies will benefit.

The latest Currency Composition of Official Foreign Exchange Reserve data from the International Monetary Fund show that the dollar’s share of global foreign exchange reserves fell to 57.4% in Q3 2024 (Figure 1). This is the smallest share since 1994 and represents a decline of almost nine percentage points during the last decade.

The key driver of this move has been a reaction to the increased weaponisation of the dollar. This has always been an aspect of its ‘exorbitant privilege’ but has grown in importance since the 11 September 2001 terror attacks and reached a peak in 2022 after the Russian invasion of Ukraine.

Figure 1. Dollar’s share of global reserves fell by 9pp over last decade

Dollar’s share of global reserve currencies, %

Which Currencies Will Benefit From Dollar Erosion?_1

Source: IMF COFER

Weaponisation will also be a factor behind the next 10% decline in the dollar share. The US is in the enviable position of being able to use financial assets to achieve foreign policy, or sometimes military objectives, without deploying soldiers. Hence, national security goals can be achieved relatively cheaply.

However, as early as 2017, then US Treasury Secretary Jack Lew acknowledged that the use of this weapon will push some players to avoid the dollar in the future, thereby reducing the extent of dollar dominance.

Academics have been successful in forecasting the gradual decline in dollar dominance since the year 2000 but have been hopeless at forecasting which currencies would benefit. Many have been in search of a single winner, when the reality has been that a wide array of currencies have benefitted. This pattern will continue.

The top 10 countdown

It is the small currencies that have taken up most of the slack in the last decade. Some of these, such as the Japanese yen, UK sterling, Australian dollar, Canadian dollar and Swiss franc, are named in the IMF COFER report. All five of them will grow as the US dollar’s share declines.

Figure 2. Smaller currencies have profited from dollar’s smaller share

Major reserve currency shares except dollar and euro, %

Which Currencies Will Benefit From Dollar Erosion?_2

Source: IMF COFER

The category that may continue to do best is described in the IMF data as ‘other’. These are non-traditional currencies that are currently not specifically measured in the data.

A non-traditional currency that will grow is the South Korean won. South Korea is the 12th largest nation in the world in terms of gross domestic product. Geopolitically, it is an important cog in the US association of like-minded nations. In May 2024 it was announced that South Korea was in talks to join the military security partnership between the US, UK and Australia known as AUKUS. Security agreements as well as trade flows (and the financial flows that mirror these) underpin the argument for the won.

A new name on the list for the next decade is the Indian rupee. India is the fifth biggest economy and most populous nation on earth. Size counts in this debate, as we saw a decade ago with the initial adoption and enthusiasm for China’s renminbi.

India is ‘non-aligned’, and keen to have cordial relations with a wide list of nations. It is in an unusual position. On one hand, it is part of the Quad security arrangement (with the US, Japan and Australia). On the other hand, India is a key member of the Brics group and since 2022 has had a close oil trading relationship with Russia. However, it also has land border tensions with fellow Brics member China.

Comparisons to the internationalisation of the renminbi are instructive. The Chinese currency began to be held as a reserve currency by central banks from 2010 onwards despite a lack of currency convertibility. While not a substitute for deep, liquid and open capital markets, large foreign exchange reserves help to dampen currency volatility and enhance the argument for investing in the new currency.

Large foreign exchange reserves may provide comfort to global central banks who are looking to diversify their currency exposure into the rupee. This is a bold forecast – but a small slice of this story will benefit the rupee.

The euro and renminbi will also win, albeit modestly

At the turn of the century the newly launched euro was expected to go toe-to-toe with the dollar. However, the euro’s weight in reserves today has barely changed since 1999. The lack of capital market union and failure to develop a single issuer bond market to rival the depth and liquidity of the US Treasury market are two reasons. Nevertheless, as the principal alternative to the dollar, the euro will take a small extra slice of the pie and remain in clear second place.

In 2016 the forecast winner was the Chinese renminbi. Following a promising start after the 2008 financial crisis and the decision by Beijing to promote the internationalisation of the currency, success has been modest. This is despite the fast-tracked inclusion in 2016 into the IMF currency basket known as the special drawing rights.

The renminbi is currently home to around 2% of global foreign exchange reserves. The share has declined since the Russian invasion of Ukraine. Eastern European central banks such as the Czech National Bank and the Central Bank of Lithuania have both liquidated their Chinese holdings. The latter explicitly cited Ukraine as a reason.

The renminbi story has also been hampered by capital market reforms that have fallen short of expectations, and most recently by Chinese bond yields that have fallen sharply. At current levels of yield new buyers of renminbi bonds might be discouraged.

However, geopolitical fracturing has two sides to it. For some nations China will be a friend rather than a foe, will command a larger share of the trade flows with these nations and the renminbi will have appeal for the managers of reserves. Despite headwinds, the renminbi will gain a modest foreign exchange reserves share over the next decade.

Finally, the Singapore dollar already has a small slice of the foreign exchange reserves pie, and can grow modestly. Large renminbi trade invoice flows through Singapore have led to rapid growth in the demand for Singapore dollar foreign exchange swaps. If continued, this will underpin the appetite for the Singapore dollar.

What chance of a new Brics currency backed by gold?

There has been speculation that a desire to avoid the dollar might encourage the launch of a gold-backed Brics currency, and that this might become a rival trade currency to the dollar and an eventual home for foreign exchange reserves.

This is unlikely. The Brics nations (Brazil, Russia, India, China, South Africa and, since 2024, Saudi Arabia, Egypt, United Arab Emirates, Ethiopia, Iran and Indonesia) are a heterogenous group, with differing objectives and – in the case of India and China – significant rivalries. This is not an obvious starting point for a shared currency project.

The issues involved in establishing any kind of Brics currency (gold-linked or otherwise) would be enormous. Further talk of adding nations to the Brics group would increase complexity and reduce the probability of a new currency arrangement. It will not be taking a share of the foreign exchange reserves pie in the next decade.

The conclusion must be that dollar dominance will continue to erode due to further weaponisation of the currency. But even if the weight of the greenback falls to 50%, primary dominance will be maintained because there will not be a single challenger from the pack. Instead, the next 10 years will see 10 currencies each take a small slice of the next 10% of dollar erosion.

Source: Gary Smith

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Owen Li

Economic

As one of the most competitive economies globally, it consistently ranks among the top nations for providing a business-friendly environment.

Since achieving independence in 1965, Singapore has undergone a remarkable transformation. From a small domestic market economy grappling with high unemployment and poverty, it has evolved into a highly developed, free-market economy driven by industrialisation and global trade.

The city-state is highly urbanised, with a population of approximately 5.96 million in 2024. English, one of Singapore’s official languages, serves as the primary medium of communication in business and government.

Singapore’s economic growth is primarily driven by exports and domestic demand. The country’s GDP experienced a significant contraction of 4.1% in 2020 due to the coronavirus pandemic. However, recovery was swift, with growth rebounding to 7.6% in 2021, the highest annual rate since 2010’s 14.5%. Growth moderated in subsequent years, with GDP expanding by 3.6% in 2022 and slowing further to 1.2% in 2023. Singapore Economy_1

While the IMF WEO October 2024 forecasted 2.6% growth in 2024, the Ministry of Trade & Industry (MTI) just said the economy grew by 4%. For 2025, the MTI sees growth slowing to a range of 1-3 %, citing geopolitical conflicts and higher uncertainty over US trade policies under the Trump administration. The IMF forecasts 2.5% growth in 2025.

The country’s GDP per capita remains one of the highest globally. In 2024, GDP per capita is estimated to be $104,127, underscoring Singapore’s status as a global economic leader.

While unemployment exists, it remains minimal due to structural changes such as outsourcing lower-skilled jobs. The unemployment rate stood at 2.7% in 2023 and is projected to come down to about 2% in 2024.

Currency and Central Bank

The Singapore dollar (SGD) is the official currency of Singapore and is divided into 100 cents. It is commonly denoted by the dollar sign ($) or S$ to distinguish it from other dollar currencies. Banknotes and coins are issued by the Monetary Authority of Singapore (MAS), the country’s central bank.

As of 2024, the Singapore dollar remains one of the strongest currencies in the Asia-Pacific region and continues to play a key role in international trade and finance. It is also among the top traded currencies globally, ranking 11th in 2021 and maintaining its prominence in recent years due to Singapore’s stable economic environment and sound financial policies.

In addition to its role as a central bank, the MAS serves as Singapore’s financial regulatory authority, overseeing banking, insurance, securities, and the broader financial sector. The MAS is currently led by its chairman, Ravi Menon, following Tharman Shanmugaratnam’s tenure.

Inflation in Singapore has moderated after reaching a peak of 6.1% in 2022. In 2023, inflation eased to 4.8%, reflecting tighter monetary policies and stabilising global supply chains.

According to official data from MAS, core and headline inflation in 2025 are both expected to average 1.5 – 2.5%, compared to the 2024 forecast of 2.5 – 3.0% and around 2.5%, respectively.

Industry and Trade

Singapore’s economy is predominantly driven by the services and industrial sectors. According to the Singapore Department of Statistics, services industries contributed over 70% to the nominal value added, while goods-producing industries accounted for about 25%.

The manufacturing sector remains a cornerstone of Singapore’s industrial landscape, comprising approximately 18.6% of GDP. Key industries include electronics, petrochemicals, biomedical sciences, logistics, and transport engineering. Notably, the electronics cluster has experienced a resurgence, supported by strong demand for smartphone, PC, and AI-related chips, according to the Ministry of Trade and Industry (MTI).

Within the services sector, wholesale trade represents a significant portion. In the first quarter of 2024, the domestic wholesale trade index declined by 2.2% year-on-year, while the foreign wholesale trade index increased by 3.4%.

The finance and insurance sector also demonstrated robust growth, expanding by 6.7% year-on-year in the second quarter of 2024, driven by the banking and fund management segments. Singapore Economy_4

Singapore relies heavily on its export sector. Top exports include machinery and equipment, petroleum products, chemical products, miscellaneous manufactured articles, and oil bunker.

Biggest imports include machinery and equipment (including electronics), crude oil, miscellaneous manufactures and chemical products.

The nation’s primary trading partners are China, the United States, Malaysia, the European Union, Taiwan, and Hong Kong. In 2023, Mainland China, the US and Malaysia were Singapore’s top trading partners. Singapore’s exports to Mainland China exceeded Singapore’s imports from Mainland China, while Singapore’s imports from Malaysia and US exceeded exports to these trading partners.

Stock Exchanges and Capital Markets

The Singapore Exchange or SGX is the sole stock exchange in the country. It is a multi-asset exchange that operates equity, fixed income and derivatives markets, and provides listing, trading, clearing, settlement, depository, and data services. It is the largest stock market exchange in Southeast Asia, with a total of 620 listed companies, as of September 2024.

The SGX uses the FTSE Straits Times Index or STI as its benchmark index. The STI is a capitalisation-weighted stock market index that tracks the performance of the top 30 companies listed on the SGX.

Approximately 40% of the companies listed on SGX are based outside Singapore, highlighting its role as a regional financial hub. SGX positions itself as a leading offshore market for equity index derivatives, covering major Asian economies with high liquidity. Notably, the exchange has expanded its derivatives offerings, including the GIFT Nifty 50 Index Options, which saw a significant increase in trading volume in 2024.

Along with London, New York, and Tokyo, Singapore is consistently listed as one of the world’s most active trading centres. SGX continues to enhance its market infrastructure and diversify its product offerings to maintain its competitive position in the global financial landscape.

Bond Market

Singapore’s bond market continues to attract both local and foreign investors, maintaining its position as one of the most developed in Asia. The country’s AAA credit rating from major agencies reflects its strong fiscal discipline and economic stability.

Singapore Government Securities (SGS) are a cornerstone of the bond market, comprising Treasury Bills (T-bills), SGS Bonds, Singapore Savings Bonds (SSBs), and Cash Management Treasury Bills (CMTBs). T-bills are short-term securities issued at a discount and maturing in 6 months or 1 year, providing returns upon maturity. SGS Bonds, in contrast, are longer-term instruments with fixed coupon rates and periodic interest payments, available in maturities ranging from 2 to 50 years. SSBs are designed for individual investors, offering step-up interest rates over 10 years and flexible redemption options. Meanwhile, CMTBs are short-term instruments primarily used for cash management purposes.

The MAS highlights several objectives for issuing SGS Bonds and T-bills. These include creating a liquid market to facilitate efficient trading, establishing a robust government yield curve as a benchmark for pricing other debt instruments, and supporting an active secondary market for cash transactions and derivatives to enhance risk management. Furthermore, the issuance of these securities encourages participation from both domestic and international issuers and investors, bolstering the growth and global integration of Singapore’s bond market.

Real Estate Market

Singapore’s real estate market exhibited mixed trends throughout 2024. In the third quarter, private residential property prices declined by 0.7%, marking the first decrease since the second quarter of 2023. This downturn was observed across all market segments, with landed property prices falling by 3.4% and non-landed property prices experiencing a marginal increase of 0.1%. For the first three quarters of 2024, overall private housing prices rose by 1.6%, a notable slowdown compared to the 3.9% gain during the same period in 2023.

Conversely, the public housing sector demonstrated robust growth. Resale prices for public housing units increased by 9.6% in 2024, nearly doubling the 4.9% rise observed in 2023. The number of resale transactions also grew by 8% year-on-year. Despite government interventions aimed at cooling the market, such as reducing the loan-to-valuation ratio for resale flats from 80% to 75%, demand remained strong. This surge is partly attributed to supply constraints and heightened demand, with fewer newly eligible units available for sale compared to previous years.

In the luxury segment, the market faced challenges due to policy measures. The Additional Buyer’s Stamp Duty (ABSD) for foreign buyers was increased to 60% in 2024, making Singapore one of the most expensive major cities for property purchases by foreigners. This move aimed to address concerns about housing affordability for locals and to temper speculative investments.

Looking ahead, the Singapore real estate market is projected to grow from $46.58 bn in 2024 to $64.04 bn by 2029, representing a compound annual growth rate (CAGR) of 6.57%. This growth is expected to be driven by affordable housing projects and increased demand for logistics and industrial real estate. Singapore Economy_5

Source:asia fund managers

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ING

Economic

Contrary to the run-up to the ECB’s December meeting, the preparation for next week’s has been relatively quiet, at least in public. There haven’t been any controversial views about the next steps. Instead, there seems to be a growing consensus about the need for further rate cuts. Today’s comments by ECB president Christine Lagarde suggest that a 25bp rate cut at next week’s meeting is a no-brainer and that the rate cut cycle will continue.

Rate cut next week despite higher inflation

Remember that the minutes of the ECB’s December meeting already showed a growing easing bias at the European Central Bank based on doubts about the growth forecasts and the growing risk of inflation undershooting. With little new hard data since the December meeting, the ECB is currently looking at a mild version of stagflationary tendencies: continued sluggishness of the economy and accelerating inflation. Still, the ECB seems to be looking through this temporary acceleration of inflation, and even the hawks sound dovish.

The main reason for the ECB’s increased dovishness is that the December forecasts used a terminal rate of below 2%. Just to deliver the December forecasts' outcomes, the Bank will have to cut rates by a total of 100bp. Add to that the increased risks for eurozone growth stemming from the potential economic policy choices of the new US administration, and you can understand where officials are coming from.

Rate cutting will continue beyond next week's meeting

At 3%, the deposit interest rate is still restrictive and too restrictive for the eurozone economy's current weak state. The recent surge in bond yields has also worsened financial conditions in the eurozone. Even if some argue that monetary policy can do very little to solve structural issues, political instability and uncertainty in many countries will force the ECB to continue doing the heavy lifting.

Also, as long as the current inflationary pressure is anticipated to diminish over the year, the Bank is likely to overlook the present inflation resurgence. While the experience of being slow to address rising inflation will deter the ECB from adopting ultra-low rates, the desire to stay ahead of the curve remains a compelling reason to return interest rates to neutral as swiftly as possible.

This means that the ECB will continue to cut rates. Bringing them at least to the upper end of estimates for the neutral interest rate, i.e. 2.5%, seems like a no-brainer. However, if the eurozone economy remains weaker than the ECB’s December forecasts predict, cutting rates further will become unavoidable.

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Alex

Forex

Economic

Trump, who has also threatened Canada, Mexico and China with heavy duties, said on Tuesday Europe had troubling trade surpluses with the US and was "in for tariffs".

In statements to reporters before their working lunch at the Elysee Palace, both Macron and Scholz insisted that Europe was strong and the Franco-German tandem solid, while expecting difficulties.

"President Trump will, that much is already clear, be a challenge," Scholz said.

"Our position is clear. Europe is a large economic area with around 450 million citizens. We are strong. We stand together. Europe will not duck and hide."

Macron has long pushed for Europe to be more self-reliant.

"After the inauguration of a new administration in the US, it is necessary more than ever for Europeans and for our two countries to play their role of consolidating a united, strong and sovereign Europe," he said.

The two leaders mentioned the steel, car and chemicals sectors — possible targets for US tariffs — as crucial for the European economy.

Some business leaders and analysts have said Trump's first term offers evidence that he often publicly launches threats of tariffs and other measures to use as leverage, without ultimately carrying them out.

But others fear he could be emboldened by a strong popular mandate and more support in both houses of Congress.

"The European Union (EU) is very, very bad to us," Trump told reporters on Tuesday. "So they are going to be in for tariffs. It's the only way...you are going to get fairness."

Many EU countries have export-oriented economies. Already facing higher energy costs because of the war in Ukraine and a slowdown in trade with China, they do not relish the idea of a new front with the US.

"We have entered a new phase of negotiations with the US," French government spokeswoman Sophie Primas told reporters before the meeting. "Relations with President Trump are transactional. We must be as determined as the US, we must show our strength."

Both Macron — who lost snap elections last year and has had four prime ministers in 2024 alone — and Scholz, who is trailing his conservative rival in surveys before the German election next month, are weakened politically at home.

The pair have differed on many issues in recent years, slowing down decision-making in the EU and leaving a leadership void that EU institutions have struggled to fill.

"Franco-German relations must warm up very strongly and very quickly," said a French government source, speaking on condition of anonymity. "Europe won't be relaunched without a strong Franco-German couple."

But while leading German politicians have been pushing for a free trade agreement between Europe and the US, France says the EU must reject economic coercion and apply counter-tariffs if attacked.

Source：theedgemalaysia

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Owen Li

Economic

“The economic rebound is being driven by a shift from deflation to reflation, marking a dramatic transformation after years of sluggish growth,” says Stephen Way, Head of Global & Emerging Markets Equities at AGF Investments. As he explains, deflation stifled wage growth, consumer spending and overall economic activity over the past two decades. “We believe the current environment is markedly different, as rising wages, increased inflation expectations and improved corporate pricing power support a more robust economic backdrop,” he adds.

AXA Investment Manager’s Gabriella Dickens also sees the end of deflation in Japan “with a virtuous wage/price spiral appearing to take hold”. “We see scope for a structural rise in wages over the coming years,” the G7 Economist – Macro Research says. “Dwindling labour supply amid an ageing population should increase bargaining power, while rising inflation expectations among households and businesses should pave the way for larger pay rises in the coming years. We look for a rise in base pay of around 3% in 2025 and 2026,” Dickens adds.

However, economic challenges remain, including labour shortages, straining production and public finances. Global trade uncertainties and the Bank of Japan’s monetary tightening pose risks to exports, consumer spending, and investments.

Japan Outlook: Equities

In 2024, the Nikkei 225 reached its highest level since 1989, and the Japanese equity market is expected to maintain its current robust performance. However, the stock market is sensitive to macroeconomic conditions in the US as well as the Bank of Japan’s monetary policy, cautions Tomochika Kitaoka, Chief Japan Equity Strategist at Nomura. So, the market’s reaction to tariffs being imposed by the US is one concern for 2025.

However, according to Nomura, the impact of Trump’s tariffs on Japanese corporate earnings is unlikely to be substantial.

Asian Market Insights

Exclusive news, analyses and opinion on Asian economies and financial markets.

Sumitomo Mitsui Trust Asset Management (SuMi Trust) sees the equity market’s positive momentum bolstered by “expectations for a soft landing for the US economy, improving corporate earnings in the service sector, and a positive outlook for shareholder return programs by Japanese companies”.

“The key to whether corporate earnings remain steady will be if the yen can maintain the assumed exchange rate of 145 yen to the dollar used by many Japanese companies in their earnings forecasts,” says Hiroyuki Ueno, Chief Strategist at SuMi Trust.

The yen is at historically weak levels but has shown some signs of resilience since June 2024. SuMi Trust expects the Japanese currency to likely move in response to Japanese and US monetary policy developments.

“While the BOJ’s plans will take into account the economy, prices, and the general finance environment, we expect that they will continue to raise rates as planned since real interest rates are currently at a low level,” says Ueno.

Pictet Asset Management believes the yen will be the major beneficiary of the dollar’s long-term decline and will appreciate next year. “The Japanese economy is set to accelerate while the Bank of Japan is one of the few central banks that will hike interest rates. According to our model, the yen is around 20% below its fair value,” says Pictet in their outlook for 2025.

“We believe the biggest risk for Japan in 2025 is that following decades-long stagnation, its moderate economic recovery could face a slowdown, denting business and investor sentiment,” opines Junichi Inoue, Head of Japanese Equities at Janus Henderson Investors.

He notes that the earnings growth rate for the Japanese market is anticipated to be in the high-single digits, a target that appears achievable. However, Inoue highlighted that while the financial sector is expected to drive this growth, the manufacturing sector might experience a more pronounced slowdown, potentially impacting profits if revenue growth falters, as cost reductions in this sector are not easily implemented.

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Exclusive news, analyses and opinion on Asian economies and financial markets.

Source:asia fund managers

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Owen Li

Central Bank

“I’ll demand that interest rates drop immediately,” he said at a virtual address to the World Economic Forum in Davos, Switzerland. He paired his comment on rate cuts with a call for Saudi Arabia to reduce oil prices.

“I’m going to ask Saudi Arabia and OPEC to bring down the cost of oil,” Trump said, later adding: “With oil prices going down, I’ll demand that interest rates drop immediately.”

It’s an ambitious agenda, but the odds are low that Trump could, from the bully pulpit of the White House, issue orders that change interest rates and oil prices in a meaningful degree through time. Impossible? Maybe not. This, after all, is Trump and his political rise has come at the expense of numerous political norms that are now buried under the rubble of the collapsed old-world-order that was Washington pre-2016.

But while Trump has a history of getting what he wants, and beating the odds along the way, he’s set a high bar with interest rates and oil prices that will likely be difficult, if not impossible, for the president to control. What’s different here is that rates and oil are set globally, driven by a mix of supply and demand data, economic indicators, investor sentiment, rank speculation, and many other factors. The idea that any one person – even the most powerful person on the planet – can dictate oil prices and interest rates is akin to assuming that you can easily grab a couple of eels out of a bucket of water.

Let’s start with interest rates. The Federal Reserve controls the short end of the yield curve and presumably Trump’s plan would be to order the central bank to lower the target rate whenever he decides it’s time to ease monetary policy. In theory, that’s possible, but several things would need to happen first, perhaps starting with Trump firing Fed Chairman Jerome Powell, who would likely refuse to follow the president’s directive on rates.

Could the president fire the Fed head? “No,” Powell told reporters in November. “Not permitted under the law.”

Laws can be changed, of course, and Republicans control both houses of Congress. But we’re a long way from rewriting the rules for the Fed’s operations. Never say never, but I’ll go out on a limb here and predict such a huge change — and one that would likely upend markets — in the status quo for US central banking is unlikely.

But let’s indulge in a thought experiment and imagine Congress gives the president the power to set interest rates, which would make the Fed little more than the White House’s errand boy. Even in such an alternative universe, the president’s newly acquired monetary powers would only directly apply to the Fed funds target rate, which casts a long shadow over short-term yields. Further out on the maturity curve is a different story.

Case in point: the Fed announced its first rate cut for the current cycle on Sep. 18, 2024. But expecting longer maturities to act in lockstep with Fed decisions is assuming too much. In the four months since the Fed first reduced its target rate (followed by two more cuts), the 10-year Treasury yield has increased by roughly 100 basis points. And since long rates determine the cost of borrowing, this is where most of the economic signifance lies vis-a-vis changes in interest rates.

Trump Says He’ll ‘Demand That Interest Rates Drop Immediately’_1

Perhaps the president would have more success lowering oil prices. Although Saudi Arabia is only one of several members of the OPEC cartel, the kingdom does have an outsized influence over crude prices, thanks to the country’s ample reserves – the world’s second largest. No less important is the low cost-per-barrel to pump Saudi oil – the lowest among producers.

But while Saudi influence on global prices is significant, it’s not absolute. There’s also the question of whether the kingdom would play ball with Trump. Possibly, although under what conditions (and price tag) is open for debate.

Even if the House of Saud is willing to do a deal with Trump, it’s not obvious that oil prices will quickly fall significantly for any length of time. The history of OPEC – a cartel that’s intent on manipulating oil prices to maximize profits for its members – has had mixed results over the decades since its founding in 1960.

To be fair, Trump is hardly the first president to cajole the Fed and oil producers. Nixon, for example, famously pressured Fed Chairman Arthur Burns to expand the money supply for political purposes in the runup to the 1972 election. The results, however, weren’t encouraging.

Ultimately, global markets will determine medium- and long-term interest rates and oil prices. The caveat for Trump is that politicians who try to circumvent markets eventually lose.The price discovery mechanism, unlike politicians and bureaucrats, can’t be suppressed, bought off or rendered inert for long.