Former Bank of Japan Deputy Governor Hiroshi Nakaso predicts the dollar will remain a key global currency, but sees cracks in its supremacy. He believes investors will continue diversifying into other currencies amid uncertainty over U.S. tariffs and a changing global economic order driven by President Trump’s policies.

Nakaso warns of an increased risk of global economic fragmentation due to Trump’s push to replace the current economic order with one that better serves U.S. interests. He notes that although the dollar’s supremacy is unlikely to be overtaken soon, recent signs of investors diversifying into other currencies could continue in the long run.

As a prominent figure in global financial markets, Nakaso emphasizes the importance of global forums like the Bank for International Settlements and the G7 in addressing financial crises. He highlights the role these institutions play in maintaining stability during times of market stress and uncertainty.

Following Trump’s tariff announcement in April, financial markets experienced volatility, with funds flowing out of U.S. assets. However, recent trade deals and de-escalation efforts by Trump have helped restore some calm. Despite this, Nakaso believes the Bank of Japan will continue to monitor the impact of U.S. tariffs and global growth before considering interest rate hikes.

Nakaso points out potential upside risks to inflation in Japan, driven by firms raising wages and passing on rising costs to consumers. He cautions against inflation expectation overshoot and emphasizes the need for vigilant monetary policy to address these risks. With inflation-adjusted borrowing costs still negative, he believes Japan’s monetary conditions will remain loose even with another rate hike.

Read more at Yahoo Finance: Ex-BOJ deputy chief Nakaso sees ‘cracks’ in dollar’s supremacy