A WIN for Kamala Harris in the US presidential election has the potential to support Japan’s struggling currency, while a victory for Donald Trump would likely boost the Tokyo stock market and expose the yen to the risk of a deeper decline.

These are just two of the many possible market outcomes as investors and analysts sketch several scenarios for the trajectory of Japanese assets.

They warn that the risk of a contested election result means that, regardless of who initially appears to come out on top, a period of heightened volatility is likely.

Japan will be of particular interest as votes are counted in the US, given the size and liquidity of its markets and the strong focus on the US dollar-yen currency pair during Asian trading hours.

A Harris victory will likely see her stick with the status quo on economic policy, aiming for a soft landing for the US. Barring a sharp acceleration in inflation, this would clear the way for the Federal Reserve to cut interest rates. In turn, the yen would likely strengthen as Japan’s yield gap with the US narrows.

Trump’s return to power, by contrast, could support the US economy, at least in the short term, given his call for lower taxes and looser business regulations. This has the potential to help Japanese exporters while encouraging buying in US dollars.

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But its plans to impose new tariffs on trading partners are seen as a risk to Japanese stocks. Republican performance in congressional elections is another focus.

“If Harris wins, the market will react with lower yields and a weaker US dollar, and the US dollar-yen is likely to test the 150 level,” Yujiro Goto, head of currency strategy at Nomura Securities, wrote in a note.

“If there is a red move, the dollar-yen could test a rise above 155 and the focus will be on whether the Japanese authorities make a verbal intervention,” he said, referring to the Republican takeover of Congress on next to Trump’s win.

Strategists at Credit Agricole and Mizuho Bank predict the yen could slide toward 160 if Trump is victorious, close to a 38-year low against the US currency hit in July.

Polls released Sunday (Nov. 3) show Harris and Trump remain poised for a close run in this week’s election, with voters closely divided both nationally and in key swing states. As betting markets cut their odds on a Trump victory, the U.S. dollar weakened and U.S. Treasuries rallied as some polls suggested Harris had a slight lead nationally and in some battleground states .

The outcome of the US vote appears to be contributing to market volatility in Japan, where the ruling coalition’s loss of majority in lower house elections led to sharp swings in domestic asset prices. The US dollar’s one-week implied volatility against the yen rose to its highest level since early August, when the Bank of Japan’s rate hike led to strong yen gains.

A rally in Japanese stocks on a Trump victory could be short-lived if the former Republican president imposes new tariffs. If China is targeted, it could hurt the Japanese economy as it remains the country’s biggest export market. Many Japanese firms have long relied on strong growth in China to boost their earnings.

“If Trump wins and the closer we get to the red tide, the higher US fiscal spending will be, so the initial reaction will be a stronger US dollar and higher stock prices,” said Masahiko Loo, senior strategist at State Street Global Advisors. “When he starts talking about tariffs, we’ll probably see risk-off trading and stocks lose momentum.”

In addition to 60 percent on Chinese goods, Trump has floated the idea of ​​tariffs of 10 to 20 percent on all imports, which would deal a blow to Japan’s exports of cars, machinery and electronics to the US. If other countries retaliate with similar tariffs, that could slow global economic growth, hurting many Japanese firms that have expanded overseas to offset weak domestic demand. BLOOMBERG