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LIVE MARKETS-What midterms might mean for the yen

By Reuters News

Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

WHAT MIDTERMS MIGHT MEAN FOR THE YEN

The impact of US midterms could stretch far and wide, from foreign policy to financial markets, from Europe to Asia. And according to Masayuki Nakajima, fixed income strategist at Mizuho, it could well reach the Japanese yen as part of that.

For one, there's Japan's commitment to invest $550 billion in the US, which was made in 2025 in return for lower tariffs.

"After the election, the Trump administration may press for projects to be specified and funding to be deployed more quickly," he said. "Not all of this would translate directly into yen selling, but given the sheer scale of the commitment, an acceleration in actual capital flows could have a meaningful impact on the currency."

Then there's Iran, and the question whether the conflict escalates, or gets closer to being resolved, after midterms. Should it intensify and push oil prices higher again, that could worsen energy importer Japan's terms of trade, which in turn may add to downward pressure on the currency, Nakajima said.

"There is a risk that yen selling driven by higher oil prices outweighs safe-haven demand arising from geopolitical tensions."

Finally, there's the US position on yen weakness. Nakajima says that since the US-Japan coordinated intervention earlier this year, US resistance to the yen depreciating further has been key to limiting the upside of dollar-yen.

"The question is whether this stance will be maintained after the midterms, or whether Washington’s attention will fade once this major domestic political event has passed. If the latter is the case, reduced intervention concerns could leave USD/JPY better positioned to test the upside again."

(Sophie Kiderlin)

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