Japanese yen stabilizes after post-election slide

The Japanese yen has steadied on Thursday after plunging 2% a day earlier. In the European session, USD/JPY is trading at 154.00, down 0.40% on the day.

The dust hasn’t settled from the US election, as a red Republican wave swept across the country. Republican Donald Trump retook the presidency in convincing fashion, easily defeating Democrat Kamala Harris. The Republicans have gained control of the Senate and the House of Representatives race is too close to call.

The US presidential race was a dead heat going into the election and the financial markets were bracing for an unclear outcome and a period of political instability. Trump’s resounding victory sent the US dollar and US equity markets soaring on Wednesday.

Will Trump make good on his tariff threats?

Trump has threatened to slap trade tariffs on China and Europe, which could boost inflation and slow the pace of the Federal Reserve’s interest rate cuts, which  would be positive factors for the US dollar. There is understandable concern in China and Europe that Trump’s policies could lead to confrontation with the US, but trade wars would also hurt the US economy and it remains to be seen if Trump’s bark is worse than his bite.

Japan reported that wage growth jumped 2.6% y/y in September, up from 2.4% in August. This was the highest level in over 31 years and supports the case for the Bank of Japan to raise interest rates in the coming months. The BoJ wants to see higher wages which will boost spending and demand and push inflation higher. As wages move higher, expectations are rising that the BoJ will hike rates, possibly in January 2025.

The BoJ won’t be happy about the yen’s 2% slide after Trump’s election win and if the yen continues to fall it would raise pressure on the BoJ to raise rates at the December meeting or intervene in the currency markets to provide some relief for the yen.

USD/JPY Technical

• USD/JPY faces resistance at 155.78 and 156.95
• 153.54 and 152.37 are the next support levels

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