Japanese Yen Scores Notable Comeback As US-China Tensions Trigger Fears

The Japanese yen (JPY) has recorded one of its aggressive rallies against the US dollar (USD) in a long while, as the USD/JPY pair tapped the 130.39 low.

The solid performance in the yen comes amid rising US-China tensions over a Taiwan visit by US Representative Speaker Nancy Pelosi. Worries over the outcome of this visit have spurred massive capital outflows to safe-haven assets like the Japanese yen.

Japanese Yen Prints Multi-Week Low As US Bonds Sink

The yen posted a consecutive four-day gain against the dollar but lost the initiative in the London-New York session on Tuesday, with its total five-day decline of around 4.7%. The USD/JPY pair tapped the 130.39 low, a level not seen in early June.

Fears over the impact of the upcoming Taiwan high-profile visit sent investors running in all directions, pulling the stock market down as investors scurried into US Treasuries.

The benchmark 10-year Treasury yield dropped to 2.516%, its lowest figure since April. This decline in the US bonds market further closed the gap between the 10-year US debt and the equivalent Japanese bonds to 2.36%, the lowest figure since April.

In other news, the US economy contracted for a second consecutive quarter, triggering a technical recession. For now, traders would keep a close eye on other economic growth metrics, like the US jobs data ready for release on Friday.

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