U.S. elections: A Trump win would strengthen the Yen - Nomura

Analysts at Nomura, in respect of JPY, suggested that the US Election outcome will influence Japanese investors’ behaviour.

Key Quotes:

"We have written our thoughts in detail on USD/JPY in US election and USD/JPY scenario. 

The USD positive impact from higher US inflation and rates on USD/JPY is particularly ambiguous compared with other currencies. 

The expected deterioration in risk sentiment and the significant sensitivity to the probability of a Trump victory could cancel out the effect that higher US rates would have in strengthening USD, and push up JPY. 

Mr Trump’s stance on policies aimed at weakening currencies risks limiting the room available for responding with currency intervention and monetary policy in the event that JPY strengthens after a Fed decision to delay the start of rate hikes – in particular, this factor could accelerate JPY appreciation in the short term. 

If the commodities market and particularly crude oil prices worsen, supply/demand factors could strengthen JPY as Japan’s trade balance improves. 

Overall, a Trump win would mean further market pressure for a stronger JPY and weaker USD, in our view. In a scenario in which the probability of a Trump victory rises 10%, we estimate that USD/JPY will fall about 1.2% directly, but the impact on US rates and risk sentiment would also influence USD/JPY. 

The likelihood of a deterioration in risk sentiment is particularly high, such that a 5% drop in the global stock market would strengthen JPY by a further 1.5% approximately against USD for a total of 2.7%. In other words, JPY would strengthen by about JPY3."