By Kevin Buckland
TOKYO (Reuters) – The U.S. dollar hovered near a near 38-year high against the yen on Tuesday following a rise in Treasury yields as investors contemplated 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) party from taking power.
In Asia, stocks traded mixed, while crude oil rose slightly after a strong rally in the previous session.
Later in the day, U.S. Federal Reserve Chair Jerome Powell will speak at an event hosted by the European Central Bank, setting the tone for the path of U.S. monetary policy in a week that will see several closely watched jobs reports, including Tuesday’s JOLTS job openings data, a Fed favorite.
The dollar strengthened slightly on Tuesday to 161.56 yen, holding near 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 note yield up nearly 14 basis points to 4.479% to start the week. Analysts attributed the move to expectations that Trump would win the presidency, which translated into higher tariffs and government borrowing. The 10-year yield stood at 4.4534% at the opening hour in Tokyo.
President Joe Biden’s shaky performance in last week’s debate was the trigger for the surge in yields, but an additional catalyst came with the Supreme Court’s ruling on Monday that Trump has broad immunity from prosecution for attempts to overturn his 2020 election loss, said Chris Weston, head of research at Pepperstone.
“Bond traders are eyeing the increasing odds of Trump winning the White House, and the market perceives Trump 2.0 to be inflationary,” Weston said.
The yen’s malaise has traders on high alert for possible Japanese intervention after authorities spent some 9.8 trillion yen ($60.65 billion) in the days between late April and early May as the currency plummeted to 160.82 per dollar.
Meanwhile, the euro held firm against the dollar, dipping 0.07% to $1.0733, after hitting $1.0776 on Monday for the first time since June 13.
Investors expressed relief that Marine LePen’s anti-immigrant and eurosceptic RN party did not win a larger share of the vote in the first round at the weekend.
Now the party’s opponents are teaming up to tactically eliminate candidates from Sunday’s runoff vote, so that only the highest-placed candidate, regardless of party, will face the RN representative. The deadline for submitting ballots is Tuesday.
Asian stocks started Tuesday with a subdued performance and lacking general direction.
Banks helped lift Japan’s Nikkei 0.6% amid rising domestic bond yields, and property stocks boosted Hong Kong’s Hang Seng, which rose 0.3%.
However, mainland Chinese blue chips were flat, while Taiwan’s tech-heavy benchmark index fell 0.8% and South Korea’s Kospi fell 0.6%.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.2%.
Crude oil, meanwhile, rose after gaining about 2% on Monday as the summer driving season gets underway in the Northern Hemisphere.
Brent futures gained 0.21% to $86.78 a barrel, after a 1.9% gain overnight. U.S. West Texas Intermediate (WTI) crude rose 0.13% to $83.49, extending a 2.3% gain from the previous session.
($1 = 161.5900 yen)
(Reporting by Kevin Buckland; editing by Christopher Cushing)