The consequences of US president Donald Trump’ s 'America first' strategy have spread far and wide, popping up in corners of financial markets you may not even know existed.
In Japan, negotiators scrambled to reach a compromise after Trump threatened to impose tariffs of up to 25% to address the large US trade deficit.
The solution was a $550bn investment agreement — the biggest trade deal yet signed by the US president.
Looking at it another way, some argue that Japan is effectively playing the role of the International Monetary Fund.
Regardless, cash from Japanese state-backed institutions is set to flow into America Inc. in a compromise that Trump believes will restore the US as an industrial power.
Whether or not a shakedown of the dollar-yen cross-currency basis swap was ever in his sights cannot be known, but that is where the impact is already being felt.
The upshot is that large receiving flows are expected to pressure the five to 10 year part of the dollar-yen basis, pushing it wider, or more negative, and flattening the curve.
It is a consensus trade that several analysts are all backing in 2026. In days of old, consensus trades might be a red flag as positioning gets crowded.
But 2025 showed that consensus trades can, and do, work. Changes to Dutch pension fund legislation led to a pile on in euro curve steepeners, and yielded profit for many.
Now it is Trump's deal-making that has given the derivatives market a new trade to get behind. Here's just hoping the Japanese lenders don't TACO out.