The U.S. dollar hit a nearly 38-year high against the yen on Tuesday, following a rise in Treasury yields as investors weighed in on the prospect of a second Donald Trump presidency.
The weakness of the Japanese currency helped the Nikkei surpass the psychological 40,000-point mark for the first time in three months, making the index an outlier as many other regional stock markets struggled.
Crude oil rose, building on a sharp rise in the previous session, as the Northern Hemisphere’s summer driving season got underway.
The dollar hit 161.745 yen on Tuesday, a level not seen since December 1986.
The currency pair is very sensitive to US yields and the benchmark 10-year Treasury yield rose nearly 14 basis points to 4.479% to start the week.
Analysts attributed the move to expectations that a Trump presidential victory would lead to higher tariffs and government bonds. The 10-year yield stood at 4.4415% at the opening of the Tokyo stock market.
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.
Japanese Finance Minister Shunichi Suzuki reiterated on Tuesday that authorities were monitoring foreign exchange markets closely, but stopped short of warning that they were ready to act.
“Market participants have continued to shrug off his comments and appear to be testing the Treasury’s resolve to support the yen,” said Carol Kong, a strategist at Commonwealth Bank of Australia.
“The path of least resistance is therefore the continuation of the rise of the USD/JPY.
As a result, the Nikkei rose more than 1%, outpacing the region’s other major markets.
Hong Kong’s Hang Seng rose 0.4% on gains in property stocks, but mainland blue chips were flat, and Taiwan’s tech-heavy benchmark index fell 0.74%.
U.S. S&P 500 futures fell 0.13%, after the index rose 0.27% overnight.
Pan-European Stoxx 50 futures lost 0.12%, after the Stoxx 600 gained 0.3% on Monday.
The euro regained some ground against the dollar on Tuesday after a relief rally as the far-right National Rally (RN) failed to win as many votes as some polls had predicted in France’s election over the weekend.
Rival political parties have joined forces to try to prevent the RN from winning a majority in Sunday’s second round by withdrawing from constituencies where another candidate is better placed. The deadline for submitting ballots is Tuesday.
The euro fell 0.12% to $1.0727, after hitting $1.0776 on Monday for the first time since June 13.
The pound lost 0.14% to $1.2633.
The Chinese yuan fell to a fresh seven-month low, weighed down by a significant change in the central bank’s daily guidance that analysts said indicated authorities were prepared to allow the currency to ease further.
In offshore trading, the dollar hit 7.3085 yuan, its highest level since mid-November.
U.S. monetary policy will be in focus later in the day when Federal Reserve Chairman Jerome Powell speaks at an event in Sintra, Portugal, hosted by the European Central Bank.
A parade of potentially crucial U.S. employment data begins Tuesday with the JOLTS job openings report, a Fed favorite, followed by ADP numbers a day later and the all-important monthly payrolls numbers on Friday.
In energy markets, Brent crude futures rose 0.25% to $86.82 a barrel, building on a 1.9% overnight gain. U.S. West Texas Intermediate (WTI) crude rose 0.17% to $83.52, extending a 2.3% jump from the previous session. ($1 = 161.5900 yen)
