Japanese Yen Set For Biggest Run Of Gains In Over 2 Years

The yen was on track for its biggest run of gains since the depths of the coronavirus crisis in March 2020, as rising US-China tensions over Taiwan and deepening worries about a global economic slowdown boosted the appeal of safe-haven assets.

Against the dollar, the Japanese currency was on track for a fifth consecutive session of gains on Tuesday, taking its cumulative increase to nearly 4.5 per cent in five trading sessions.

In early London trading, the currency was up 0.6 per cent at 130.78 yen, just below a high of 130.40 yen, a level last seen in early June.

Jitters about the impact of an impending visit to Taiwan by US House of Representatives Speaker Nancy Pelosi weighed on stocks and sent investors scurrying into US Treasuries.

The benchmark 10-year Treasury yield fell to 2.516 per cent, its lowest since April, further narrowing the gap between ten-year US debt and equivalent Japanese bonds to 236 basis points (bps), the lowest since early April.

The US economy shrank for a second straight quarter, data released last week showed, intensifying an ongoing debate over whether the country is, or will soon be, in recession, with traders keenly watching for US jobs data on Friday.

"US data releases and the reaction in US yields through the end of this week will be critical as JPY momentum has built a considerable head of steam here," said John Hardy, head of FX strategy at Saxo Bank.

The Australian dollar fell nearly 1.5 per cent after the Reserve Bank of Australia raised rates by 50 bps to 1.85 per cent, in line with expectations.

The bank said that even though more tightening was expected, it was not on a pre-set path, which some investors interpreted as future policy tightening may not be as aggressive.

China's offshore yuan touched 6.7957 per dollar, its weakest since mid-May. Some analysts attributed this partly to the tensions around Pelosi's visit as well as poor economic data from China over the weekend.

The dollar index, which measures the greenback against six peers, rose 0.3 per cent to 105.65.