Bloomberg reported on Tuesday (October 29th) that despite the continuous weakening of the yen this year, history suggests that the yen is still expected to become an unexpected safe haven for investors seeking refuge in the US presidential election.

Data compiled by Bloomberg shows that before the past US elections, the yen had defeated the most popular safe assets such as the US dollar, Swiss franc, gold, US treasury bond bonds and the euro.

According to Bloomberg's analysis of safe haven asset trends and implied volatility in the US stock market, the Japanese yen once again became the best performing currency during a period of extreme market tension on the eve of the November 5th US presidential election vote.

Although the Japanese yen is the worst performing currency of the Group of Ten (G10) this year, traders tend to turn to the yen during market volatility.

Former US President Donald Trump's win rate is slightly ahead of Democratic candidate Kamala Harris in market betting, putting pressure on investors to develop strategies to address the impact of Trump's return to the White House on assets across the country.

Bloomberg pointed out that clear results may not be available until long after election day, which could amplify volatility in various corners of the market and prompt investors to seek safe haven.

(Screenshot source: Bloomberg)

The Japanese yen is the best safe haven during the US election period, "said Ales Koutny, the international exchange rate manager at Vanguard, the world's second-largest fund management company, based in London

There is uncertainty after the Japanese parliamentary elections on October 27th. After the ruling coalition in Japan failed to win a majority in parliament, the yen plummeted by 1% against the US dollar.

Before the formation of the new government, there may be several weeks of political maneuvering, which exacerbates the huge interest rate gap between Japan and other major economies and puts enormous selling pressure on the yen.

However, investors say that the yen still has a key advantage. Japan's record breaking 3.02 trillion yen (approximately $20 billion) current account surplus, ample yen liquidity, and relatively low inflation all contribute to making the yen, the world's third-largest trading currency, an attractive store of value.

In addition, tariff risks also benefit the Japanese yen. During the campaign, Japan largely avoided the direct threat of Trump imposing import tariffs - warnings that kept investors highly alert to potential damage to the assets of the target country.

Equally important is that the Japanese yen exchange rate is at a historical low, with greater room for appreciation in the event of severe market volatility or government intervention to support the yen.

The Bank of Japan is currently the only developed market central bank that is close to raising interest rates as the next policy measure.

Although it is widely expected that the Bank of Japan will keep interest rates unchanged this week, if the current weakness of the yen exacerbates inflation, the likelihood of the Bank of Japan raising interest rates later this year may increase.