The USD/JPY currency pair exhibited a clear pattern of bottoming out and recovering during Tuesday's (August 26) trading session. In the Asian morning session, influenced by four core factors, the price initially declined rapidly, reaching a low of 146.98. Subsequently, strong buying support emerged near the 100-day Exponential Moving Average (EMA) at 147.01, with continued buying momentum driving the pair to oscillate higher. The currency not only recovered all intraday losses but also approached the daily high of 147.87, trading around 147.79. The daily chart shows a doji candle with a long lower shadow, indicating significant technical repair. The following details the four core factors influencing USD/JPY movement.

Market Concerns Over Federal Reserve Independence Weigh on Dollar

President Trump announced early Tuesday morning Beijing time (Monday evening local time) on social media that he would remove Cook from his position on the Federal Reserve Board of Governors. This move marks a new phase in Trump's attempt to strengthen control over the Fed, a central bank long regarded as independent from political decision-making.

Trump cited provisions of the U.S. Constitution's Article II and the amended Federal Reserve Act of 1913 in his letter, stating he had determined there was "sufficient cause" to remove Cook from office. The reasoning was based on criminal referral materials submitted on August 15 by Federal Housing Finance Agency (FHFA) Director Bill Pulte (appointed by Trump), alleging Cook's involvement in mortgage fraud in 2021 by simultaneously declaring two different properties in Michigan and Georgia as "primary residences" to obtain more favorable loan rates. Trump called this action "unimaginable" and questioned Cook's "credibility as a financial regulator."

Cook's departure, combined with the earlier resignation of Biden-nominated Governor Kugler earlier this month, means Trump has gained a second opportunity to nominate Fed governors in a short period. He has already nominated White House Council of Economic Advisers Chair Milan to fill Kugler's vacancy. If Trump successfully removes Cook and nominates another person aligned with his policy stance, he could potentially place four of his nominees on the seven-member Fed Board of Governors, significantly enhancing his influence over Fed monetary policy. Due to concerns about erosion of Fed independence and future monetary policy potentially favoring political needs over economic data—namely larger-scale rate cuts—markets reacted swiftly, with the dollar index initially falling approximately 0.35% to 98.08 before recovering to around 98.40.

Financial journalist Nick Timiraos commented that this move represents "blatant extortion and an attempt to pressure policymakers into cutting rates."

This undoubtedly will trigger a legal battle, as Cook may challenge the president's authority to dismiss Fed governors through litigation, potentially requiring a Supreme Court ruling. If Trump ultimately succeeds, this would be a key step in reshaping Fed personnel composition and advancing his rate-cutting agenda, potentially leading to long-term Fed institutional reforms.

Trump Administration's Hardline Stance on Digital Services Tax Escalates

According to reports, Trump has threatened countries implementing digital services taxes with "additional follow-up tariffs" beyond existing tariffs, along with restrictions on advanced technology and semiconductor exports, in retaliation for digital services taxes targeting U.S. tech companies.

This marks a further deepening of U.S. protectionist policies in digital trade. If implemented, such threats would likely escalate global trade tensions in the short term, disrupt highly globalized tech supply chains, and potentially trigger retaliatory measures from affected countries, with potentially far-reaching impacts on global technology supply chains.

Market Concerns Over China-U.S. Trade Relations

President Trump issued strong signals regarding China-U.S. trade issues during Monday's meeting with South Korean President Lee Jae-myung in the White House Oval Office. He warned that if China refuses to supply rare earth magnets to the United States amid China's strengthened controls over rare earth mining, the U.S. might impose tariffs of up to 200% on Chinese goods.

Following these remarks, market sentiment turned cautious, with investors worried that the already complex China-U.S. trade relationship might face new turbulence. Future developments will largely depend on subsequent negotiations and strategic choices by both sides.

Japan's Increasingly Stable Domestic Politics Supporting Yen Strength

With Japan reaching trade agreements with the United States and announcing increased rice production aimed at ensuring food security and controlling inflation, public support ratings have improved, and Japanese government approval ratings continue to rise, collectively painting a picture of potential short-term yen strength. The yen may appreciate, primarily due to boosted market confidence and improved expectations.

However, potential fiscal concerns and global market volatility may still constrain the yen's upward potential. While short-term momentum appears positive, continued observation of yen trajectory remains necessary, with focus on political-economic stability and actual central bank monetary policy direction.

USD/JPY Daily Chart

As of 12:14 Beijing time, USD/JPY was trading at 147.79/80.