for a barometer of how the market is viewing the policies of u.s. president-elect donald trump, take a look at the direction of the japanese yen. the yen depreciated past <u+00a5>110 against the u.s. dollar on friday<u+2014>the latest in a bout of weakening that has seen the japanese currency depreciate as much as 10% since nov. 8, when u.s. voting results rolled in. that is because investors are betting that mr. trump<u+2019>s proposals to boost spending and growth at home will lead to a higher rate of inflation, faster interest-rate increases and a stronger dollar<u+2014>an optimistic take on the incoming president<u+2019>s campaign pledges. japan is happy about the weaker yen too, since it boosts the global earnings of the country<u+2019>s many manufacturers in yen terms, which in turn could feed into higher wages and investments at home. however, there are other trump campaign pledges that economists say could lead to an economic slowdown, particularly proposed protectionist measures that have raised the specter of trade wars . if investors concentrate on those factors instead, the yen could strengthen, some analysts say. that is largely because the yen is a favorite place for investors to stash their cash in times of turmoil . the wide range of scenarios for what could happen under a trump presidency is a big reason why some analysts forecast the yen could trade at anywhere between <u+00a5>95 and <u+00a5>120 to the dollar over the next six months. <u+201c>the main crux of this binary outcome is how the global markets react to a president trump regime, and that<u+2019>s what we<u+2019>re trying to get our heads around at the moment,<u+201d> said viraj patel, foreign-exchange strategist at ing in london. during a republican primary debate in march, mr. trump lashed out at japan for devaluing its currency. <u+201c>japan is unbelievable, what they<u+2019>re doing,<u+201d> he said. <u+201c>we are getting absolutely crushed on trade.<u+201d> the u.s. runs a trade deficit with japan that averages several billion dollars each month. if his administration wants to reverse that<u+2014>as well as the deficits it runs with many other trading partners<u+2014>then a depreciating dollar might help, potentially adding to safe-haven flows that could pressure the yen to rise. <u+201c>donald trump is going to need a weaker dollar if he wants to boost exports,<u+201d> said yasuhisa nitta, president and chief executive of prudential investment management japan, which manages <u+00a5>19.2 trillion ($174.34 billion) in assets for prudential <u+2019>s japanese insurance operations and institutional investors. on friday, japanese prime minister shinzo abe issued a brief statement after an informal meeting with mr. trump in new york, saying the president-elect was <u+201c>a leader who can be trusted.<u+201d> the statement didn<u+2019>t discuss trade. of course, many factors could come into play to muddy the picture. even if mr. trump<u+2019>s protectionist trade policies come to the fore, japan might still benefit because it is less likely to be targeted by punitive tariffs than its bigger neighbor, china, some market watchers say. that might give japanese goods an edge in u.s. markets. <u+201c>if there<u+2019>s a trade war it seems unlikely it will be aimed at japan,<u+201d> said megan greene, chief economist at manulife asset management. <u+2018> for now, we don<u+2019>t see any reason why the yen will strengthen. <u+2019> another factor that could change the currency equation is an outflow of yen as japan<u+2019>s investors target what is likely to be a growing gap between the country<u+2019>s ultralow yields and rising rates in the u.s. investment in u.s. securities by japanese insurers and pension funds is already on the rise, and would tend to weaken the yen versus the dollar. yields on 10-year japanese government bonds are only around 0.03%, and longer-dated bonds are looking unattractive versus u.s. debt, which returns substantially more , even with the added cost of a currency hedge. <u+201c>since the u.s. yield has started going up very significantly, if you invest in u.s. 10-year yield with a foreign-exchange hedge, the return is larger than a jgb 30-year investment,<u+201d> said tohru sasaki, head of japan markets research at j.p. morgan in tokyo. for now, many investors are choosing to stay optimistic<u+2014>although they remain ready to switch views. mr. trump<u+2019>s <u+201c>main policy is likely on the fiscal [expansion] side, but there is no market consensus on this,<u+201d> said koji fukaya, chief executive of fpg securities in tokyo. <u+201c>for now, we don<u+2019>t see any reason why the yen will strengthen.<u+201d> some investors have stopped buying the dollar and are taking profit on the gains, he said. write to gregor stuart hunter at gregor.hunter@wsj.com
to gauge the mood on donald trump<u+2019>s policies, look to the yen  - wsj
gregor stuart hunter suryatapa bhattacharya