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In his latest My Thoughts on Currencies, Stephen Jen reflects on how 2025 has unfolded: record-high equity prices, low and stable inflation, and a dollar correction that is still in its early stages. What began as a year of policy fear and market pessimism has shifted into a backdrop of resilience and opportunity.

“The year started out with stormy US policy rumours that pointed to structural changes in the world’s trade regime and disruptive geopolitical reorientations. Everyone was scared, and analysts had the consensus view that equities would suffer and the dollar would rally. Now, at the end of September, we are seeing record-high equity prices in many markets in the world, low and stable inflation, and an economic outlook that is, for the first time in a long while, devoid of risks of a hard landing. The dollar is weaker. My view is that the equity prices and the weak dollar make a lot of sense.”Stephen L. Jen, October 1, 2025

The note explores why the tariff shock has been more gradual than expected, how the Dollar Smile framework suggests more weakness ahead, and why rejuvenating US manufacturing requires a weaker dollar. It also considers global spillovers — from Europe’s shifting sentiment to China’s role in the dollar correction — and the implications for equities, bonds, and EM assets.


Table of Contents

  • Bottom Line

  • A Teflon US economy and the tariff shock

  • The dollar and the US’ manufacturing sector

  • President Trump’s policies

  • The US’ twin deficits not resolved or moderated

  • My outlook for the financial markets

  • LDP and BOJ independence

  • Some musings

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