The U.S. dollar hit a 38-year high against the yen on Tuesday, as Treasury yields rose as investors weighed in the possibility of a second Donald Trump presidency.
The euro held firm as rival French political parties joined forces to try to prevent the far-right National Rally (RN) from taking power.
Stocks were broadly mixed in Asia, while crude oil edged higher after a sharp rise in the previous session.
Later in the day, U.S. Federal Reserve Chairman Jerome Powell will speak at an event hosted by the European Central Bank, focusing on the path of U.S. monetary policy in a week that will see several closely watched employment reports, including Tuesday’s JOLTS job openings data, a Fed favorite.
The dollar strengthened slightly to 161.56 yen on Tuesday, remaining close to the overnight peak of 161.72 yen, a level not seen since December 1986.
The currency pair is highly sensitive to U.S. yields, with the benchmark 10-year Treasury yield climbing nearly 14 basis points to 4.479% to start the week. Analysts attributed the move to expectations of a Trump presidential victory, which would lead to higher tariffs and government borrowing. The 10-year yield stood at 4.4534% at the time of the Tokyo Stock Exchange’s opening.
President Joe Biden’s failure in last week’s debate was the catalyst for the rise in yields, but another catalyst was the Supreme Court’s ruling on Monday that Mr. Trump enjoys broad immunity from attempts to overturn his 2020 election loss, said Chris Weston, head of research at Pepperstone.
“Bond traders have one eye on Trump’s increasing chances of reaching the White House, and the market senses that Trump 2.0 will be inflationary,” Weston said.
The yen’s malaise has traders on alert for Japanese intervention after authorities spent some 9.8 trillion yen ($60.65 billion) between late April and early May, when the currency plunged to 160.82 per dollar.
Meanwhile, the euro held steady against the greenback, losing 0.07% to $1.0733, after hitting $1.0776 on Monday for the first time since June 13.
Investors expressed relief that Marine Le Pen’s anti-immigration, eurosceptic RN party did not win a larger share of the vote in the first round last weekend.
The party’s opponents are now regrouping to tactically remove candidates from the second round on Sunday, so that only the best-placed candidate – regardless of party – faces the RN representative. The deadline for submitting ballots is Tuesday.
Asian stocks started Tuesday with a mixed performance that lacked overall direction.
Banks helped Japan’s Nikkei advance 0.6% amid rising domestic bond yields, and property stocks supported Hong Kong’s Hang Seng, which gained 0.3%.
But mainland blue-chip stocks held steady, while Taiwan’s tech-heavy benchmark index fell 0.8% and South Korea’s Kospi dropped 0.6%.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%.
Elsewhere, crude oil rose after gains of about 2% on Monday as the northern hemisphere’s summer driving season begins.
Brent crude futures added 0.21% to $86.78 a barrel, building on a 1.9% rise overnight. U.S. West Texas Intermediate (WTI) crude rose 0.13% to $83.49, extending a 2.3% jump from the previous session. ($1 = 161.5900 yen)
