Yen Seen Weakening Regardless of U.S. Election Outcome
Tokyo, Sept. 5 (Jiji Press)--Japanese financial market watchers believe that the United States will see a bigger fiscal deficit and a further rise in prices whoever wins the November presidential election, resulting in a weaker yen in the long run.
The U.S. election, which will be a battle between Vice President Kamala Harris, the Democratic candidate, and her Republican rival, former President Donald Trump, is a closely watched event also for Japanese market players, with the election outcome likely to affect the dollar-yen pair and Tokyo stocks.
Many market watchers are also concerned that a return to power by Trump would cause market chaos.
While Harris is largely expected to continue the course of the current administration of President Joe Biden, more generous support for the middle-income class could shore up the economy.
By contrast, a major policy shift appears inevitable if Trump wins.
His push for a big increase in import tariffs could reignite inflation in the United States. Deportations of illegal immigrants may cause a tighter labor supply, resulting in higher wages. There is a risk that the Federal Reserve could be pressed to raise interest rates again to fight inflation.
"When we look at Trump's policies, we lean toward the view that the yen will weaken while the dollar strengthens," said Hideo Kumano, an economist of Dai-ichi Life Research Institute Inc.
The biggest difference between Harris and Trump is their policies on taxes.
Harris has proposed raising the corporate tax rate to 28 pct from the current 21 pct while expanding tax credits for households with children. Trump has vowed to extend a large income tax cut mainly for the wealthy and reduce corporate taxes further.
"Regardless of who takes power, the United States will move to ramp up fiscal spending," said Miki Ohata, an economist for U.S. affairs at SMBC Nikko Securities Inc.
"This will likely cause a rise in U.S. long-term interest rates," triggering depreciation of the yen, Ohata said.
A weaker yen has generally been a positive factor for Tokyo stocks because export-oriented companies benefit from the yen's weakening. But this may not hold true after the U.S. election.
Akihiko Yasui of Mizuho Research & Technologies Ltd. said that the Fed's expected interest rate cut would aid a stronger yen against the dollar at first.
Even if the yen switches to weaken against the dollar under Trump's America First policy, the move would be a "plus" for Japanese companies with subsidiaries in the United States, Yasui said.
The yen's depreciation, however, would be a "headwind" for companies that make goods in Japan and export them to the United States, Yasui added.
Yuichi Kodama, an economist of Meiji Yasuda Research Institute Inc., said that if Trump returns to power, "risks that fuel uncertainties ahead would fester the whole time he's in office, as we can't predict his policies."
END
