Yen Drops, Japanese Stocks Rally as Trump Pulls Ahead of Harris
(Bloomberg) -- Japan’s blue-chip stock gauge rallied while the yen slid to the weakest since July as Donald Trump pulled ahead of Kamala Harris in the US presidential election.
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Investors see the Japanese currency as likely to weaken further as Trump emerges as the victor, because his economic policy is seen as more expansionary and inflationary than that of Harris, making it less likely for the Federal Reserve to aggressively cut interest rates.
Japan’s markets are in particular focus, given their size and liquidity, and the heavy focus on the dollar-yen currency pair during Asian trading hours.
The yen weakened 1.6% to 153.98 per dollar at 4:15 p.m. in Tokyo. Japanese share prices rose, with the tech-heavy Nikkei 225 climbing 2.6% while the broader Topix index gained 1.9%.
Bank shares rose 5.8% to become the top gaining sector on the prospects of higher interest rates and hopes of deregulations, while defense-related companies such as Mitsubishi Heavy Industries Ltd. jumped on speculation Trump will put pressure on Japan to spend more on its own defense.
“Dollar-yen can gain further ground if the results continue to point to a Trump victory and equity markets continue to focus on his pro-growth policies,” said Carol Kong, a strategist at Commonwealth Bank of Australia. “I’d just caution dollar-yen can unwind all the gains if equity markets turn their focus to the prospect of another trade war between the US and China.”
BOJ Implications
The yen’s persistent slide in recent years has been fueling imported inflation, putting pressure on the central bank to raise borrowing costs and adding to the woes of Japan’s Liberal Democratic Party, which needs to forge a new coalition after losing a majority in the Lower House in an election last month.
“Given the fall in the yen, I think a BOJ rate hike in December is possible now,” said Yasuhiko Hirakawa, head of investment at Rakuten Investment Management Inc.
Japan’s 10-year government bond futures dropped 49 ticks to 143.78. The 10-year benchmark cash debt yield rose 4.5 basis points to 0.980% while the two-year note yield rose to a 16-year high.
Japanese shares have failed to climb back to record levels hit in July as the yen’s recovery from its nadir that month and rising borrowing costs weighed on sentiment. A 12% plunge in both the Topix and Nikkei indexes on Aug. 5 was a reminder that Japan’s recently high-flying stocks have a lot of room to fall if investor sentiment turns pessimistic.
The ruling coalition’s loss of its majority led to sharp swings in domestic asset prices. Uncertainties about the coalition’s fate have also weighed on stock prices.
Still, Takatoshi Itoshima, a strategist at Pictet Asset Management Japan, said he’s become bullish on the nation’s equities, “For all the talk about the Trump trade, I don’t think many investors have ridden on that wave yet,” he said.
The gains in Japanese contrasted with falls in Chinese stocks, which were hit by worries Trump will slap tariffs on products from China.
“It’s going to be Trump’s view on China that matters now. For the next four years at least, not a penny of US pension money will go to China or Hong Kong. Other than Japan, nowhere else in Asia is big enough or has the breadth to absorb it,” said Neil Newman, head strategist at Astris Advisory Japan.
--With assistance from Momoka Yokoyama, Winnie Hsu and Alice French.
(Updates market prices)
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