MNI POLICY: BOJ Worries US Election Result Jitters To Lift Yen

Bank of Japan officials are worried that a delay in the U.S. presidential election result will increase volatility and destabilize financial markets by strengthening the yen, thereby hurting Japan's economy, MNI understands.

The election is due on Nov. 3, but the result is expected to be delayed due to postal voting. A contested result could extend the waiting period.

BOJ officials feel there is a risk of greater volatility as market players grow jittery with the delay, which could weaken the dollar to JPY100 or below, a level that is seen as crucial for the domestic economy.

Bank officials will closely watch the pace of the move when the yen appreciates for indications of a change in the trend.

Besides damping stock prices, a stronger yen worsens the sentiment of firms and households and increases downside risks to the economy and prices.

SIDE EFFECTS

The dollar's decline toward JPY100 or below will trigger speculation that the BOJ could deepen the short-term policy rate from -0.1% - a move not favoured by the bank as it would increase the side-effects of the negative rate policy - or strengthen the forward guidance for the policy rate.

The BOJ introduced yield curve control in September 2016 to mitigate the side-effects of the negative rate policy introduced in February the same year. While the policy was effective in curbing the yen's rise, it eventually destabilized markets by giving a strong impression that the profitability of banks would fall. Bank shares sold off as a result, hurting the Nikkei stock index.