Wall Street strategists suggest the Japanese yen could be significantly influenced by the outcomes of the U.S. presidential election. Should Vice President Kamala Harris win, Japan's weak sovereign currency may find support. Conversely, a victorious return of former President Donald Trump could boost the Japanese market but also risk a substantial yen depreciation.
Various scenarios have been outlined for Japanese assets' trajectories. The election could lead to a period of increased market volatility, depending on the outcome's clarity. The yen will be closely watched globally as the election unfolds, given Japan's market size and liquidity.
If Harris wins, she may maintain current U.S. economic policies, potentially paving the way for Federal Reserve interest rate cuts unless inflation accelerates. This could narrow the yield gap between U.S. and Japanese government bonds, strengthening the yen.
In contrast, a Trump victory might initially boost the U.S. economy through tax cuts, higher tariffs, and deregulation but could also raise inflation and encourage the purchase of Japanese exports. His tariff plans pose significant risks to the Japanese market and yen.
Strategists commonly agree that Trump's policies would involve expansionary fiscal measures and heightened trade protectionism, strengthening the dollar against multiple currencies and increasing U.S. Treasury yields.
The performance of political parties in Congress elections is also crucial, with a divided Congress typically favoring continued U.S. stock market growth. A Harris victory might prompt yen appreciation, while a 'red wave' of Trump and Republican wins could weaken the yen sharply.
Polls indicate a tight race between Harris and Trump, with opinions divided nationwide and in key swing states. Betting markets reflect diminished expectations for a Trump victory, leading to dollar weakening and U.S. Treasury price gains.
Electoral outcomes will heighten Japanese market volatility. Japan's ruling coalition losing its lower house majority has already caused domestic asset fluctuations. The yen’s implied volatility has surged recently, especially after past unexpected Bank of Japan rate hikes.
Trump's potential tariff hikes could offer only brief Japanese market relief, especially if China is a core tariff target, impacting Japan's economy given its heavy export reliance on China. Persistent high tariffs globally may slow global economic growth, challenging Japanese companies expanding overseas to offset domestic demand weaknesses.
