(Bloomberg) — A victory for Kamala Harris in the US presidential election has the potential to support Japan’s ailing currency while a win for Donald Trump would probably boost the Tokyo stock market and put the yen at risk of a deeper slump.
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That’s just two of the many possible market outcomes as investors and analysts sketch multiple scenarios for the trajectory of Japanese assets.
They caution that the risk of a contested result in the election means that regardless of who initially appears to come out on top, a period of heightened volatility is likely.
Japan will be in particular focus as votes are counted in the US, given the size and liquidity of its markets, and the heavy focus on the dollar-yen currency pair during Asian trading hours.
A Harris win will likely see her stick with the status quo on economic policy, pursuing a soft landing for the US. Barring a sharp acceleration in inflation, that would clear the way for the Federal Reserve to cut interest rates. The yen in turn would likely strengthen as Japan’s yield gap with the US narrows.
The Japanese currency shed some of its gains Tuesday after surging as much as 1% in the previous session. The dollar-yen inched 0.2% higher to 152.47 at 1:15 p.m. in Tokyo time after sliding on Monday as investors pared bets on a Republican victory at the US election.
Japanese shares rebounded coming back from a three-day weekend after tumbling on Friday, with the broad Topix index rising 0.8%, but investors were cautious ahead of the US vote. Benchmark 10-year bond yields were little changed at 0.935%.
Trump’s return to power could bolster the US economy, at least in the short term, given his call for lower taxes and looser business regulations. That has the potential to help Japanese exporters while encouraging dollar buying.
But his plans to impose new tariffs on trading partners are seen as a risk for Japanese shares. Republicans’ performance in Congressional elections is another focus.
“If Harris wins, the market will react with lower yields and a weaker dollar, and dollar-yen will likely test the 150 level,” Yujiro Goto, head of foreign-exchange strategy at Nomura Securities Co., wrote in a note.
“If there’s a red sweep, dollar-yen may test a rise above 155, and the focus would be on whether Japanese authorities conduct verbal intervention,” he said, referring to the Republicans taking control of Congress in addition to Trump winning.