October 2025 Monthly: The "Gilded
Age" Takaichi Trade and the Trump TACO Trade Collide
Monday, October 20, 2025
① The Market Flocks to Fashionable
Trends
The
Out-of-Control Narrative Economy and the Foreshadowing of the Collapse of
Civilization
Amid the
triple whammy of a weak yen, inflation, and a bubble, policy can no longer be
seen as driven by "narratives." The market reacted to the Abenomics
double-down, accelerating the "Takaichi Trade." Meanwhile, in the
United States, "TACO," a derisive term for Trump's negotiating
tactics, became a buzzword. Financial markets appear to be dancing in a bubble,
driven by reflexes that follow current trends, emotions, and simplified
decision-making rules (heuristics).
What is the
Takaichi Trade?
The Takaichi
Trade is an investment behavior in which the market overreacts to the proactive
fiscal and monetary easing policies of Prime Minister-elect Sanae Takaichi,
resulting in a simultaneous weakening of the yen, rising stock prices, and
falling bond prices. This is a market pattern in which policy expectations take
the lead, piggybacking on "Sanaenomics," which can be seen as a
doubling-down on Abenomics, a policy that has already proven to be a failure.
What is the
TACO trade?
On the other
hand, TACO (Trump Always Chickens Out) is an acronym that mocks the pattern of
Trump's tough statements, followed by a market crash, a conciliatory stance,
and a market rebound. The market incorporates repeated threats and compromises,
resulting in short-term risk-on and -off cycles.
Fads
eventually fade.
However,
there are inherent risks inherent in the high-market trade, particularly.
First, it relies on the way policies are communicated rather than their
effectiveness, and political uncertainty could lead to a sudden reversal. Above
all, there are concerns that continued simultaneous easing of fiscal and
monetary policy will further accelerate inflationary pressures in Japan.
TACO also
has its perils. Lack of policy consistency exacerbates market instability, and
taking positions based on a "complacent" approach could undermine
institutional trust.
Gold Price
Skyrocket and Signs of Civilizational Collapse
Ultimately,
both the "high market trade" and "TACO" depend more on the
way policies are communicated than on their substance. This demonstrates that
markets are driven by narratives, not systems, and heralds the arrival of an
era in which adaptability prevails over efficiency.
The classic
"efficient market hypothesis," which holds that markets are always
correct and efficient, is on the wane, and the heuristic "adaptive market
hypothesis" is increasingly taking center stage among market participants.
In particular, last Thursday's surge in gold prices (hit $4,375.80 per ounce,
up 65.7% year-to-date) should be interpreted not simply as a flight of assets,
but as a sign of institutional fatigue and the collapse of civilization amid a
loss of confidence in fiat currencies.
In
particular, gold prices have been soaring since Federal Reserve Chairman
Powell's speech at Jackson Hole this summer. This is not simply a hedge against
inflation risk; it must be seen as incorporating an implicit scenario of
distrust in fiat currency, institutional fatigue, and the collapse of
civilization.
② Sanaenomics and Trump 2.0 will collide
due to a "prisoner's dilemma."
Unfortunately,
both Sanaenomics and Trump 2.0 are policies based on "inward-looking
economic nationalism." While they aim to stimulate the economy in the
short term, prioritizing domestic interests, in the long term they will likely
lead to a prisoner's dilemma through currency and trade wars, and both Japan
and the United States are likely to suffer losses due to xenophobia reminiscent
of the former anti-foreigner ideology.
Sanaenomics
vs. Trump 2.0: Similarities and Differences
The policies
of both parties share the following similarities:
Item:
Sanaenomics Trump 2.0
Fiscal
Policy: Active fiscal policy (tax cuts and increased spending); Permanent tax
cuts (corporate tax cuts)
Monetary
Policy: Pressure on the Bank of Japan to curb interest rate hikes and
interference with its independence; Pressure on the Federal Reserve to lower
interest rates and interference with its independence
Trade
Policy: Promoting exports by inducing a weaker yen; Correcting the trade
surplus through increased tariffs
Economic
Nationalism: "Reclaiming Japan" and "America First"
Both
advocate "our country first," but their approaches are deployed on
different battlefields: a currency war (Japan) and a trade war (US).
Win-Win or
Prisoner's Dilemma?
Ideally,
Japan and the United States should build a "win-win" relationship in
which their respective demands complement each other's. However, the reality is
that the following structural risks exist:
• Currency war vs.
trade war: Yen manipulation worsens the U.S. trade deficit, while Trump's
tariffs hinder Japanese exports.
• Prisoner's dilemma:
As each country strengthens its own national policies, there is no room for
cooperation, ultimately resulting in losses for both sides.
• Institutional
fatigue: Central bank independence is undermined and fiscal discipline
collapses, leading to a loss of long-term credibility.
Gold price
surge: A sign of the collapse of civilization.
In October
2025, gold prices surpassed $4,000 per ounce for the first time in history,
recording a 50-65% increase since the beginning of the year. This is not simply
an inflation hedge; it has deeper implications, including:
• Devaluation of the
dollar and currency distrust: BRICS countries are increasing their gold
purchases, and confidence in U.S. Treasuries is declining.
• Limits of the
system: Politics is eroding the independence of the Federal Reserve and the
Bank of Japan, calling into question the sustainability of the monetary system.
• Civilizational
transition: Historical parallels include the sudden rise in gold prices during
the collapse of the Roman Empire, the Spanish Empire, and the Tokugawa
Shogunate (during the Meiji Restoration).
Gold is a
"stateless currency" and a mirror image that acts as a harbinger of
institutional collapse.
Toward the
final chapter of the narrative economy.
Sanaenomics
and Trump 2.0 both drive markets through "narratives," but when those
narratives erode confidence in the system, gold becomes a last resort. The end
of civilization may come not with the collapse of the system, but with the end
of the story.
③ "The surest way to destroy
capitalism is to debase currency."
Lenin's
words, quoted by Keynes in "The Economic Consequences of the Peace,"
"The surest way to destroy capitalism is to debase currency" ring
almost prophetic in the face of today's inflation and skyrocketing gold prices.
The Fuse of
Currency Debasement: Sanaenomics and Trump 2.0
Both
policies have the potential to accelerate the "debasement of
currency," which undermines institutional credibility.
Sanaenomics
• Yen Weakening:
Pressure on the Bank of Japan to raise interest rates and expansionary fiscal
policy have weakened the yen's purchasing power.
• Dilution of Fiscal
Discipline: Simultaneous spending sprees have led to the normalization of
fiscal deficits.
• Institutional
Fatigue: Conflicts with the bureaucracy have intensified, leading to a loss of
policy consistency.
Trump 2.0
• Politicization of
the Dollar: Interference with the Federal Reserve, pressure to lower interest
rates, and a desire to weaken the dollar.
• Rekindling of the
Trade War: Inflationary pressure and supply chain disruptions due to increased
tariffs.
• Fiscal Expansion:
Increased debt due to permanent tax cuts and increased military spending.
Both
policies have a structure that "stimulates the economy at the expense of
the currency's value," a perfect example of the "institutional
collapse caused by the debasement of the currency" that Lenin warned
about.
Lenin's
Warning and the Modern-Day Fuse
Lenin's
words, "The debasement of currency is the surest way to destroy an
institution," are no longer merely a historical aphorism but are becoming
a reality as the consequences of modern policy. Sanaenomics and Trump 2.0 will
be the fuse, and the brilliance of gold will serve as a mirror reflecting the
decline of institutions. The end of civilization may begin with the collapse of
currency.
History
Ruled by Chance: The Asymmetry of the Meiji Restoration and the Civil War
• Without the Civil
War of 1861, the United States might have been more proactive in its foreign
affairs and might have been able to provide more stable democratic support to
Japan at the end of the Edo period.
• The Second French
Empire also supported Japan in military technology and institutional reforms at
the end of the Edo period, while mitigating the hegemonic competition between
Britain and France.
• If such
international cooperation had functioned properly, Japan might have pursued
"enriching the country and enriching the people" rather than
"enriching the country and strengthening the military," and chosen
democratic modernization rather than imperialism.
This is not
a case of "there are no ifs in history," but rather a perspective
that history is a chain of chances and choices, a series of probabilistic
branchings.
Contemporary
Coincidence: The Risk of a Dark Situation in Sanaenomics and Trump 2.0
• Both accelerate the
"narrativization of institutions," and unpredictable, contingent
events (political events, war, financial crises) could potentially cause the
collapse of institutions and the downfall of civilization.
• This could lead to
institutional exhaustion and a return to a mythical order, as in the
"Eejanaika Ranbu" (dance dance) and the "Sonno Joi" (revere
the Emperor, expel the barbarians) frenzy.
• The outcome could
be a self-destructive choice for Japan and the United States, or the
reconstruction of a new narrative—we stand at this crossroads.
At the
Intersection of Coincidence and Institutions
History is a
chain of coincidences, and institutions are the devices that transform those
coincidences into narratives. In both Sanaenomics and Trump 2.0, when their
narratives transcend institutions, coincidences no longer represent hope but a
harbinger of downfall. However, it is precisely in a world ruled by chance that
we have the freedom to choose again.
④ The striking similarities between the
"Eejanaika" dance of the late Edo period and the modern-day gold
dance
• Incidentally,
common people at the end of the Edo period danced wildly to the
"Eejanaika" amid monetary chaos (a three-fold difference in the
domestic and foreign prices of gold and silver during the isolation period,
followed by a massive outflow of gold and inflow of silver after the country
opened up) and hyperinflation, amid soaring prices (rice prices soared
approximately eightfold from the end of the Edo period to the Meiji
Restoration). This was not just a festival; it was an expression of a loss of
faith in the system and a return to a mythical order.
• The modern-day gold
price surge may also be manifesting as a "gold-shining dance" amid a
wavering trust in legal tender and a flight to gold, the currency of an
institutionalized era.
Sonno Joi
and the Excess of Revolutionary Ideology
• Sonno Joi was an
ideology that combined a return to a mythical order (the emperor) with
xenophobia in response to external pressure (the arrival of the black ships)
and institutional failure (the shogunate's financial collapse).
• This enthusiasm
overthrew the pro-opening faction (pro-shogunate, pro-rationalism) and gave
rise to the revolution known as the Meiji Restoration. However, history teaches
us that the subsequent pursuit of national wealth and military strength and
imperialism ultimately led to self-destruction in the recent war.
The
brilliance of gold signals the decline of institutions.
• The current surge
in gold prices is a sign that credibility in institutions is eroding and
narratives are becoming excessive.
• When
"narrative policies" like Sanaenomics and Trump 2.0 drive markets
without institutional backing, it marks a return of the "Eejanaika"
("What's the Big Deal?") movement. Like the Sonno Joi (Revere the
Emperor, expel the barbarians) craze, this could signal institutional collapse
and revolution.
Risk of
Isolation and Self-Destruction and Civilizational Choices
If Japan
were to once again be consumed by the "narrative enthusiasm" and lose
institutional rationality, the isolation and self-destruction seen during the
recent war could be repeated. The brilliance of gold could be a bell announcing
the death of institutions and the revival of myth.
⑤.
Coalition Talks Leave "Politics and Money" Behind—The Future of an
Administration Prioritizing Interests Over National Interests
The Mainichi
Shimbun's editorial, "LDP-Ishin Coalition Talks: Will 'Politics and Money'
Be Left Behind?" dated Saturday, October 19th, hits home the current
political situation. It's highly persuasive and truly serves as a wake-up call.
The
LDP-Ishin Coalition Talks portend the birth of a system that prioritizes
privileges and interests over national interests. Their rush to enter power
while shelving the fundamental issue of political funding transparency will
only deepen distrust in politics, far from gaining public trust.
The Ishin
Party's 12 policy demands include a ban on corporate and organizational
donations. However, Yoshimura, the party's leader, stated, "The LDP will
never say yes," demonstrating no commitment to making this a reality. This
was also the primary reason Komeito distanced itself from the LDP.
Despite the
Ishin Party's proposal being stricter than the Komeito proposal, it has been
left out of the core of the negotiations. This attitude undermines the
credibility of the Ishin Party, which advocates political reform. The inclusion
of a reduction in the number of Diet seats as an "absolute condition"
raises suspicions that this is a tactic to divert the discussion from the issue
of political funding.
The
sub-capital plan, too, is ostensibly intended as a backup function in the event
of a disaster, but its true intention is to revisit the "Osaka
Metropolitan Government Plan," which was rejected twice in the past. As
for social security reform, there are concerns that reducing insurance premiums
will lead to a decline in the quality of medical services.
Meanwhile,
the LDP's efforts to gain a majority are outrageous. The formation of a new
parliamentary group with Takashi Tachibana's "Party to Protect the People
from NHK" undermines the foundations of democratic politics. Cooperating
with individuals who repeatedly spread information of unknown veracity
undermines the integrity of the administration.
Japan has
experienced the 40 years since the Plaza Accord (1985) as a "lost
era."
Sanaenomics,
which could be described as a doubling down on Abenomics, has failed to achieve
either price stability or sustainable growth, and is instead accelerating the
quadruple whammy of a declining birthrate, stagnant consumption, a weak
currency, and rising prices.
As the
people continue to be exploited, is Japan destined for ruin? This question has
become a real one. In an era of multi-party politics, coalition negotiations
are inevitable. However, we must not neglect fundamental issues related to
trust in politics. Compromises should be made on policy details, not political
ethics.
⑥ Acknowledge
the True Risks to the Global Economy in an Era of Monetary Illusion
A Nikkei editorial (October 16th,
Thursday) characterized the Trump administration's reciprocal tariff policy as
"the greatest risk to the global economy." However, this perspective
is based on monetary illusion. While tariffs are certainly a contributing
factor, concluding that they are the greatest threat misunderstands the true
nature of currency and purchasing power.
The U.S. has already agreed to a
maximum 15% tariff rate on Japan. Meanwhile, the dollar-yen exchange rate
exceeds 150 yen against purchasing power parity (1 dollar = 108 yen),
representing a depreciation of the yen by approximately 39%. In other words, effective
price adjustments through exchange rates are already underway, offsetting the
impact of tariffs.
Trade and currency are two sides
of the same coin, and discussing tariffs in isolation is tantamount to
misinterpreting the economic picture.
The Japanese Economy's
"Quadruple Woes" and the
Monetary Illusion
The greatest risks facing Japan
in 2025 are the following quadruple woes:
• The collapse of the
population structure due to a declining birthrate
• Weakening domestic demand
due to prolonged consumption stagnation
• Loss of purchasing power
due to currency depreciation
• Difficulties in daily life
due to rising prices
These are real hardships that
cannot be captured by nominal indicators. Despite this, the "monetary
illusion"—driven by superficial figures like a weak yen and rising stock
prices—is distorting public perception.
Gold Price Skyrocketing and
Collapse of Currency Confidence
As already mentioned, the real
risk to the global economy is the collapse of currency confidence, symbolized
by the abnormal rise in gold prices. As of October 16, gold (gold) recorded
$4,375.80 per ounce, up 65.7% since the beginning of the year. This is not
simply a flight of assets, but a collapse of fiat currency itself. This is a
sign of distrust in things.
In particular, the sharp rise in
gold prices since the Federal Reserve's Jackson Hole meeting on August 22 is an
unusual and alarming phenomenon.
The "eye of the storm"
in this global currency depreciation trade is none other than Japan's
"high market trade," which aims to weaken the yen and boost stock
prices.
An uncontrollable doubling down:
The dangers of Sanaenomics
With inflation exceeding 2% for
41 consecutive months since April 2022, "Sanaenomics," which aims to
double down on Abenomics, is nothing more than a rehash of policies that failed
to achieve price stability and sustainable growth. The vicious cycle of a weak
yen, inflation, and a bubble has spiraled out of control, putting Japan on the
brink of economic collapse.
IMF Outlook and Its Blind Spots
The IMF has revised its global
growth forecast for 2025 upward to 3.2%. Some believe the impact of Trump's
tariffs "isn't as shocking as initially anticipated." However,
structural risks, such as a rekindling of US-China tensions, the collapse of
the AI boom, and immigration
restrictions, remain unmanifest.
The pessimistic scenario also
suggests that global GDP could decline by 1.2% in 2026. In other words, now is
the time for countries to stop settling for a lull and instead rebuild
international cooperation to prevent a chain reaction of currency, trade, and
hegemony collapses.
Conclusion: Clearing the Fog of
Monetary Illusion
Japan is now on the front lines
of global economic risk. Rather than Trump tariffs, the real risk we must face
is the inherent crisis caused by monetary illusion and policy fallacies.
*Monetary illusion: A
psychological tendency to be confused by nominal monetary changes and misjudge
real changes in purchasing power and living standards.
Tomo Nakamaru, Former World Bank
Economist
