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Trump Victory: Yen's Slide Heightens BOJ Risks

AInvestWednesday, Nov 6, 2024 11:17 pm ET
1min read
The victory of former president Donald Trump in the 2024 U.S. presidential election has set the stage for significant changes in U.S. economic policy, with potential implications for global currencies and central bank policies. One of the most immediate effects has been the renewed slide of the Japanese yen, which could heighten risks for the Bank of Japan (BOJ) and influence its interest rate policy.

The yen's depreciation, triggered by Trump's victory, has put downward pressure on the currency, with the yen hitting a three-month low of 154.71. This slide, reminiscent of the post-election period, has raised concerns about the yen's potential to fall back toward three-decade lows. A weak yen boosts Japanese exports but increases import costs, particularly for fuel and food, which can hurt consumption and fuel inflation.

The BOJ, sensitive to currency weakness, may feel pressured to raise interest rates to prevent excessive yen falls. In July 2024, the BOJ hiked rates to 0.25% to combat yen depreciation, and a similar move in December 2024 is not out of the question. However, analysts are divided on the timing of the next hike, with some suggesting a wait until January or March to gauge more data.


If the yen continues to depreciate, it could reignite voter discontent, as seen in Japan's recent general election. Rising inflation, driven by increased import costs, was one of the factors behind the voter swing against the ruling coalition. The BOJ may respond with rate hikes to curb yen falls and manage inflation, but a renewed plunge toward 162 yen/dollar could prompt intervention by both the BOJ and the government, as witnessed in July 2024.


The BOJ's policy stance differs from that of the Federal Reserve, with the BOJ raising rates in July to combat yen depreciation, while the Fed cut rates to maintain liquidity and market stability. A Trump presidency could exacerbate yen depreciation, pressuring the BOJ to raise rates further. However, the BOJ's focus on price stability and the Fed's emphasis on growth and market stability highlight the nuanced approaches of these central banks.

In conclusion, Trump's victory has set the stage for a renewed slide in the yen, which could heighten risks for the BOJ and influence its interest rate policy. The BOJ may feel pressured to raise rates to prevent excessive yen falls, but the timing and extent of any rate hike remain uncertain. The interplay between global politics, currencies, and central bank policies underscores the importance of a nuanced understanding of these dynamics in investment decision-making.
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