donald trump <u+2019>s victory isn<u+2019>t what dollar bulls wanted. nor is it what japan needed. the japanese yen took a sharp turn wednesday as odds that republican candidate donald trump would be the next president of the u.s. built up. the yen strengthened more than 3% before paring some gains. that comes after weeks of hovering around a more comfortable level for japan<u+2019>s policy makers. a stronger yen would unwind what happened after the bank of japan <u+2019>s moves in september to control the government-bond yield curve. yields on japanese government bonds fell after the election results came in. signs of any trouble keeping the 0% target on 10-year bonds could lead to forced tightening or reducing government-bond purchases, far from what the economy is prepared for. a crucial issue facing markets and japan in particular, is whether mr. trump reignites a rerun of trade tensions from the 1990s. should trade turbulence, weakness in u.s. stocks and investors<u+2019> hankering for safe assets all pick up, japanese investors and companies will rush to hedge their dollar exposures. yen-hedging demand is close to its highest on record already, according to deutsche bank analysts. the inevitable result: an even stronger yen. this dynamic was a key factor when the bill clinton administration was on the brink of a trade war with japan two decades ago. the yen strengthened 20% during a two-year spat over luxury-car tariffs. for a country that runs a trade surplus and is a large holder of u.s. financial assets, this poses a big threat. then there is the trans-pacific partnership, which still had an outside chance of passing before tuesday<u+2019>s result. now, the 12-nation trade treaty, which could have catapulted reforms inside japan<u+2019>s economy, seems destined for the dustbin. unlike the yen<u+2019>s almost 7% swing on the day of britain<u+2019>s vote to leave the european union, the moves wednesday weren<u+2019>t as outsize. the trouble is the yen could track a slow and painful path stronger. treasurys dropped tuesday as longer-end japanese government bonds rose, narrowing the differential between the rates. the federal reserve may be less likely to raise rates in december. even as uncertainty over policy looms large, the yen<u+2019>s path appears more certain. write to anjani trivedi at anjani.trivedi@wsj.com
trump and the yen: making things uncomfortable for japan - wsj
anjani trivedi