By Kevin Buckland
TOKYO (Reuters) – The U.S. dollar hovered near a near 38-year high against the yen on Tuesday, following a sharp rise in Treasury yields as investors weighed in on 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 strong rally 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, shedding light 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 was slightly stronger at 161.56 yen on Tuesday, holding close to the overnight high 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% earlier this week. Analysts attributed the move to expectations that a Trump presidential victory would lead to higher tariffs and government borrowing. The 10-year yield was at 4.4534% in Tokyo.
President Joe Biden’s faltering performance in last week’s debate was the trigger for the rise in yields, but an additional catalyst came with the Supreme Court’s ruling Monday that Trump enjoys broad immunity from lawsuits over 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 taking the White House, and the market senses that Trump 2.0 will be inflationary,” Weston said.
The yen’s malaise has put 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 firm against the greenback, falling 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-immigrant, eurosceptic RN party did not win a larger share of the vote in the first round over the weekend.
The party’s opponents have now joined forces to tactically exclude candidates from Sunday’s second round, so that only the best-placed candidate – from all parties – can face the RN representative. The deadline to cast a ballot is set for later on Tuesday.
Asian stocks started Tuesday with a muted performance and lack of overall direction.
Banks helped lift Japan’s Nikkei 0.6% amid rising domestic bond yields, and property stocks supported Hong Kong’s Hang Seng, which rose 0.3%.
But mainland stocks were flat, with Taiwan’s tech-heavy benchmark index down 0.8% and South Korea’s Kospi slipping 0.6%.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%.
Elsewhere, crude oil advanced after gains of about 2% on Monday as the northern hemisphere’s summer driving season begins.
Brent crude futures rose 0.21% to $86.78 a barrel, after rising 1.9% 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)
(Reporting by Kevin Buckland, editing by Christopher Cushing)
