As the U.S. presidential election approaches, Japanese companies are closely monitoring the outcome, with a significant number expressing a preference for Kamala Harris over a second term for Donald Trump. Already the yen intervention has gripped the banking while the political turmoil saw the exit of the prime minister in Japan. 

The Nikkei plunged 12.4% on Aug. 5 in the market's biggest single-day decline since the 1987 Black Monday crash and bounced back 10% the following day. The index fell as much as 27% from its July peak above 42,000 by Aug.5, 2024. 

A recent Reuters survey highlights the concerns of Japanese businesses about the potential impact of U.S. trade policies on their operations, particularly in light of Trump's history of protectionism and policy unpredictability.

According to the survey, 43% of Japanese firms believe that a Harris presidency would be more beneficial to their corporate strategies and business plans, compared to only 8% who favor Trump. Another 46% of respondents indicated that either candidate would be acceptable, while 3% expressed a preference for neither.

The apprehension surrounding a Trump administration largely stems from the potential for renewed trade wars, economic friction, and security concerns. A manager at a ceramics manufacturer noted that such developments under Trump could force companies to revise their business strategies. This sentiment is rooted in past experiences, where Japan's relations with the Trump administration were strained by demands for increased payments for U.S. military assistance and ongoing trade tensions.

In contrast, many Japanese companies view Harris as a candidate who would likely maintain current policies, offering greater predictability and stability. An official at a chemicals firm expressed optimism that a Harris administration would provide better visibility into the future, allowing businesses to plan more effectively.

The survey also revealed that Japanese companies are considering various adjustments in anticipation of a potential Trump victory. Of those respondents, 34% indicated they would need to review their foreign exchange strategies, 28% mentioned realigning their supply chains, and 21% said they would consider reducing their operations in China. This concern is amplified by Trump's proposals for a 10% universal tariff on U.S. imports and a potential 50% tariff on Chinese goods, which could disrupt international markets and further complicate business operations.

The survey, conducted by Nikkei Research on behalf of Reuters, polled 506 companies between July 31 and August 9, with 243 firms responding. It also shed light on broader trends regarding Japanese companies' operations in China, with 13% considering scaling back due to concerns over economic recovery, tough price competition, and economic security risks.

Additionally, the survey touched on the Japanese yen's recent volatility. Despite intervention by Japanese authorities earlier this year, the yen fell to a 38-year low of 161.96 to the dollar in July. While 24% of respondents viewed the intervention as appropriate, 64% believed it was unavoidable. Opinions on whether the Bank of Japan should raise interest rates to support the yen were mixed, with 51% advocating for such a move only in cases of excessive exchange rate fluctuations.

Looking ahead, Japanese companies have varied expectations for the yen's value, with 32% predicting it will trade between 145 and 150 yen to the dollar by the end of the year, while 25% expect it to be stronger at 140 to 145 yen, and 22% anticipate it trading between 150 and 155 yen.

As the U.S. election draws near, Japanese businesses continue to weigh the potential impacts on their operations, with many hoping for a stable and predictable policy environment under a Harris presidency, in contrast to the uncertainties associated with a second Trump term.

(With inputs from agencies)