USD/JPY surges to near 154.40 as US Trump claims victory over Democrats

• USD/JPY soars to near 154.40 as US Trump declares victory and is on course to take the Senate.
• Investors will shift focus to the Fed’s monetary policy meeting on Thursday.
• The BoJ would struggle to tighten its interest rate policy further.

The USD/JPY pair refreshes a four-month high near 154.40 in European trading hours on Wednesday. The asset strengthens as the US Dollar (USD) outperforms its rival currencies with the victory of Republican candidate Donald Trump in sight. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, climbs above 105.00.

According to the Associated Press, Donald Trump has already won three out of seven major battleground states of North Carolina, Pennsylvania, and Georgia, and is leading over Democratic rival Kamala Harris in the rest.

Market experts see Trump’s victory as favorable for the US Dollar for a longer-term horizon. Trump vowed to hike tariffs by 10% on imports, except for China, which is expected to face even higher, and lower corporate taxes. A scenario that will boost domestic investments, employment, and overall demand, which will prompt upside risks to inflation.

Meanwhile, Trump has declared victory after gaining an undefeatable lead, according to BBC News. With Trump’s victory seeming assured, investors will shift focus to the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Thursday. The Fed will cut interest rates by 25 basis points (bps) to 4.50%-4.75%, according to the CME FedWatch tool. Investors will pay close attention to Fed Chair Jerome Powell’s interest rate guidance after Trump’s victory.

In Japan’s region, an absence of specific interest rate hike plans in the Bank of Japan (BoJ) policy meeting minutes of October 31 has weighed on the Japanese Yen (JPY). “We will scrutinize data available at the time at each policy meeting, and update our view on the economy and outlook in deciding policy,” BoJ Governor Kazuo Ueda said in the monetary policy statement after leaving interest rates unchanged at 0.25%.

The BoJ appears to be incapable of further policy tightening as Trump’s victory is expected to impact Japan’s export sector.

Japanese Yen FAQs

What key factors drive the Japanese Yen?

The Japanese Yen (JPY) is one of the world’s most traded currencies. Its value is broadly determined by the performance of the Japanese economy, but more specifically by the Bank of Japan’s policy, the differential between Japanese and US bond yields, or risk sentiment among traders, among other factors.

How do the decisions of the Bank of Japan impact the Japanese Yen?

One of the Bank of Japan’s mandates is currency control, so its moves are key for the Yen. The BoJ has directly intervened in currency markets sometimes, generally to lower the value of the Yen, although it refrains from doing it often due to political concerns of its main trading partners. The BoJ ultra-loose monetary policy between 2013 and 2024 caused the Yen to depreciate against its main currency peers due to an increasing policy divergence between the Bank of Japan and other main central banks. More recently, the gradually unwinding of this ultra-loose policy has given some support to the Yen.

How does the differential between Japanese and US bond yields impact the Japanese Yen?

Over the last decade, the BoJ’s stance of sticking to ultra-loose monetary policy has led to a widening policy divergence with other central banks, particularly with the US Federal Reserve. This supported a widening of the differential between the 10-year US and Japanese bonds, which favored the US Dollar against the Japanese Yen. The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.

How does broader risk sentiment impact the Japanese Yen?

The Japanese Yen is often seen as a safe-haven investment. This means that in times of market stress, investors are more likely to put their money in the Japanese currency due to its supposed reliability and stability. Turbulent times are likely to strengthen the Yen’s value against other currencies seen as more risky to invest in.

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