
US/Japan: Tariff rebranded, power diluted. Following the US Supreme Court’s invalidation of Trump’s IEEPA tariffs, the administration moved quickly to invoke Section 122, imposing a 10% global tariff from 24 Feb, with the possibility of an increase to 15% and no clearly defined timeline. This swift pivot signalled no liberation from his broad tariff policies, albeit global tax-effective rates are estimated to be lowered by 3.8 %pts (2.1 %pts for potential 15% tariff), according to Global Trade Alert. However, capped at 15% and requiring Congressional approval for extension, the shift to Section 122 lacks the fear factor needed to extract deep concessions with major trading partners, who recognise that the administration faces a legislative dead-end on 24 Jul. The Supreme Court’s ruling also transforms prior IEEPA tariff collections into a sizable refund liability estimated at around USD175bn, potentially upending the administration’s core strategy of using tariff revenue to fund the “One Big Beautiful Bill”.
Meanwhile, the State of Union (SOTU) confirmed that the administration has entered a pre-election "campaign mode," prioritising domestic economic stability over geopolitical brinkmanship. By favouring diplomacy over military action in Iran, the President signalled a preference to prevent a spike in oil prices that would fuel cost-of-living concerns. This pivot away from escalation would also clear the way for Trump to pressure his Fed Chair nominee, Kevin Warsh, to implement aggressive rate cuts.
The US Conference Board's Feb 2026 report showed consumer confidence rising to 91.2, up from an upwardly revised 89.0 in January. The increase was driven by a rise in short-term expectations for income, business, and labour conditions to 72 from 67.2. Despite the improvement, the Expectations Index remained below the 80 threshold that has historically signalled a recession ahead. The present Situation Index decreased by 1.8 pts to 120, reflecting a more pessimistic assessment of current business and employment conditions compared to Jan 2026. Consumers remained concerned about prices, inflation, and the cost of goods. Mentions of trade and politics also increased in February.
Turning to Japan, Takaichi’s cabinet nominated two members to the Bank of Japan’s policy board on 25 Feb: Toichiro Asada and Ayano Sato. Both are viewed as supportive of reflation and looser monetary settings. Markets interpreted the appointments as a shift towards a more dovish BOJ stance, implying slower interest rate hikes. We view the market reaction as a normal adjustment to previously overpriced expectations of an April rate hike. The outgoing members, Asahi Noguchi and Junko Nakagawa – whose terms expire in March and June, respectively – were considered dovish and neutral. Their replacement is unlikely to significantly alter the BOJ’s nine-member policy board. We maintain our expectation that the BOJ will continue a data-dependent approach to monetary policy, likely delivering the next rate hike in June or July, after assessing this year’s Shunto wage negotiations, confirming wage-inflation dynamics, and evaluating the impact of China’s expanding export controls on Japan’s growth outlook.
Figure 1: Effective tariff rates (%)
Source: Global Trade Alert, DBS. Note: SCOTUS = Supreme Court of the United States
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