Japan's yen could rise or fall against the dollar depending on who wins the 2024 presidential election.
Democratic presidents tends to boost the dollar, while the opposite happens under Republicans, BofA said.
Election uncertainty is already spurring moves in global currency markets.
The coming US election will determine more than just American policy, as its outcome could also play into how the Japanese yen performs, Bank of America said.
Though it's not a clear-cut pattern, Democratic presidencies have usually led to yen weakness against the dollar, while the opposite tends to occur under Republican administrations, analysts said in a note Thursday.
"While how the next US presidency affects USD/JPY remains uncertain, the market may start focusing on potential implications in advance. Again, spring may be a focal timing for USD/JPY with Super Tuesday on March 5," they said.
Since Democrat Joe Biden became president, the yen has depreciated 40%, BofA pointed out, though that's largely due to actions outside of the White House.
The decline coincided with the Federal Reserve's aggressive rate hikes and the Bank of Japan's continued loose monetary policy.
Still, global foreign exchange markets are turning their focus to the election, and volatility is mounting among currencies such as the euro and Mexican peso. Year-ahead pricing is starting to rise relative to shorter-dated maturities on currency options.
For the yen, this has led to a four-year high in the spread between one-year and nine-month volatility, Bloomberg reported, citing JPMorgan data.
And while Japan's central bank is expected to pivot away from its loose policy, which would boost the yen, BofA maintains its bearishness on the currency.
That's because it historically continues to weaken after a Federal Reserve pause, even as the dollar drops. A turn towards appreciation tends to start a quarter ahead of the first rate cut.
While the yen stands at 148 against the greenback, the bank projects that it will plummet to a 155 level in the first quarter, before rebounding to 142 by the end of 2024.
Beyond the election, other risks fueling yen uncertainty will include any changes to US labor and global manufacturing, the level of foreign direct investment in Japan, and both Tokyo and Washington's fiscal policies, according to BofA.
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