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Protectionism, yen appreciation under Trump may work against Abenomics

The Japanese government is likely to face difficulty in economic management as a result of Republican candidate Donald Trump’s victory in the U.S. presidential election. This is because of the possibility of rapid yen appreciation and increased protectionism. There is growing concern that this will constitute a “major adverse wind” for Abenomics.


During the election campaign, Trump claimed that “Japan is devaluing its currency to make people buy (Japanese-made) Komatsu products instead of (U.S.-made) Caterpillar products.” He criticized Japan repeatedly for using yen depreciation as a means to expand exports to the U.S. It is possible that under a Trump administration, monetary policy might change to induce the depreciation of the dollar, which will mean yen appreciation for Japan.


Midterm business results of listed companies last September showed a decline in profits for the first time in four years. Auto and electrical machinery manufacturers and other export-oriented companies are already hurting because of the appreciation of the yen. If the yen appreciation trend is not corrected, business results will deteriorate further, preventing wage hikes for employees, which will delay the achievement of the Abenomics goal of a “virtuous economic cycle.”


Trump also criticized the TPP and called for rethinking NAFTA (North American Free Trade Agreement).


He has criticized Japan for imposing a tariff of over 38% on U.S. beef and threatened to impose a 38% tariff on Japanese cars. He has also indicated that steep tariffs will be imposed on Chinese products. If he actually takes these measures, global trade will contract and this will inevitably impact the Japanese economy.


The Daiwa Institute of Research released on Nov. 9 a projection that if Trump’s victory brings about a plunge in stock prices, yen appreciation, and contraction of the global economy at a level comparable to the Lehman Shock, Japan’s real GDP stands to shrink by 1.12%, mainly due to a drop in exports.


One policy that could be favorable for Japan is the promotion of infrastructure construction in the U.S. One analyst notes, “An increase in public investment in the U.S. will stimulate the economy, and this will benefit the world, including Japan.” Certain Japanese companies may profit if this leads to the expansion of infrastructure exports.

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