The U.S. dollar surged to a near 38-year high against the yen on Tuesday, driven by a sharp increase in Treasury yields as investors considered the potential impact of a second Donald Trump presidency. This strength in the dollar helped lift Japan’s Nikkei index above the psychological 40,000 mark for the first time in three months, making it an outlier in a region where many stock markets struggled.
The dollar reached 161.745 yen, a level not seen since December 1986. The currency pair is highly sensitive to U.S. yields, and the benchmark 10-year Treasury yield climbed nearly 14 basis points to 4.479% at the start of the week. Analysts attributed this move to expectations of a Trump win, which could result in higher tariffs and increased government borrowing. The 10-year yield stood at 4.4415% during Tokyo trading hours.
President Joe Biden’s recent faltering debate performance and a Supreme Court ruling granting Trump broad immunity from prosecution over attempts to overturn his 2020 election loss have added to market volatility. “Bond traders have an eye on Trump’s increasing odds of taking the White House, and the market senses Trump 2.0 will be inflationary,” said Chris Weston, head of research at Pepperstone.
The yen’s weakness has traders on high alert for potential Japanese intervention. Japanese finance minister Shunichi Suzuki reiterated vigilance over currency markets but did not repeat a warning about intervention. Carol Kong, a strategist at Commonwealth Bank of Australia, noted, “Market participants continued to ignore his comments and appear to be testing the Ministry of Finance’s resolve to support the JPY.”
The Nikkei’s rally contrasted with mixed performances in other regional markets. Hong Kong’s Hang Seng added 0.4% amid gains for property stocks, but mainland blue chips remained flat, and Taiwan’s tech-heavy benchmark dropped 0.74%. U.S. S&P 500 futures pointed slightly lower, following a modest rise for the cash index overnight. Pan-European Stoxx 50 futures dipped 0.12% after the Stoxx 600 advanced 0.3% on Monday.
The euro eased 0.12% to $1.0727 after a relief rally, while sterling lost 0.14% to $1.2633. China’s yuan hit a seven-month low, influenced by a shift in the central bank’s daily guidance, signaling a willingness to allow further easing of the currency.
Federal Reserve Chair Jerome Powell’s upcoming speech in Portugal, hosted by the European Central Bank, will be closely watched, alongside key U.S. employment data releases throughout the week. In energy markets, Brent crude futures rose 0.25% to $86.82 per barrel, and U.S. West Texas Intermediate crude increased 0.17% to $83.52, building on previous session gains.
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