Trump's victory, is the Japanese stock market the "big winner"?

After Trump's victory, expectations for his re-election and a "red sweep" have boosted global capital market sentiment, with the Japanese stock market receiving a short-term lift due to the depreciation of the yen.

According to a research report released by JP Morgan on the 8th, under the backdrop of Trump's return to power, the Japanese stock market will welcome significant opportunities due to yen depreciation, expectations of a recovering U.S. economy, and heightened risk sentiment in global markets.

However, in the long term, the impact of Trump's re-election remains uncertain, particularly regarding its complex effects on global trade, exchange rate policies, and more.

Short-term outlook: Yen depreciation boosts the Japanese stock market

Following the announcement of Trump's victory, the yield on U.S. ten-year Treasury bonds briefly climbed to 4.4%, and the USD/JPY exchange rate surged to a high of 154.

The Nikkei Index and the TOPIX in the Japanese stock market also rose, with the financial sector and industries related to overseas demand performing particularly well.

JP Morgan analysts pointed out that the U.S. election has a net positive impact on the Japanese stock market in the short term.

“ After the U.S. election results were announced, U.S. long-term interest rates rose, expectations for U.S. rate cuts diminished, and the yen weakened against the dollar. These macro conditions are generally favorable for the Japanese stock market.”

Yen depreciation is beneficial for the Japanese stock market, especially with the positive impact of yen depreciation on the profitability of Japanese export-oriented companies, further solidifying the upward potential of the Japanese stock market.

However, if the yen weakens further against the dollar, even rising to the level of 160 yen in the short term, this could be a "double-edged sword."

JP Morgan believes that on one hand, yen depreciation will enhance the competitiveness of Japanese export-oriented companies.

On the other hand, it may also put pressure on domestic price levels and real wage growth in Japan. If Japan's CPI growth exceeds expectations, it will put pressure on the domestic consumer market, weakening residents' purchasing power. This will have an adverse impact on domestic demand in Japan.

Long-term outlook: Can the Japanese stock market continue its upward trend with a strong U.S. economy?

In the long term, JP Morgan expects that Trump's re-election will further strengthen the U.S.'s dominant position in the global economy, further pushing the "American exceptionalism" to become a reality, meaning that the strong performance of the U.S. economy and stock market will have spillover effects globally.

In this scenario, the benefits for the Japanese stock market mainly manifest in two aspects: on one hand, stable growth in overseas demand, and on the other hand, increased competitiveness of Japanese exports due to the relative depreciation of the yen.

However, JP Morgan analysts also caution that the uncertainty of future U.S. relations with other major powers may put pressure on some Japanese companies that rely on exports. In particular, if the Trump administration continues to impose tariffs and strengthen regulations on other countries in the future, Japanese companies in sectors such as fiber, textiles, mining, and non-metallic materials, which have a high reliance on exports, may be negatively impacted In addition, Trump's policies may bring structural benefits to Japanese companies related to defense, while domestic demand-driven industries such as IT services are also expected to maintain stable growth