The US dollar hit a near 38-year high to the yen on Tuesday following a surge in Treasury yields as investors contemplated prospects of a second Donald Trump presidency.

Japan’s weak currency helped lift the Nikkei above the psychological 40,000 mark for the first time in three months, making the index an outlier as many other regional stock markets struggled.

Crude oil rose, building on a strong rally in the previous session, as the northern hemisphere summer driving season got underway.

The dollar rose as high as 161.745 yen on Tuesday, a level not seen since December 1986.

The currency pair is highly sensitive to US yields and the benchmark 10-year Treasury yield climbed nearly 14 basis points to 4.479 per cent to start the week.

Analysts attributed the move to expectations for Trump winning the presidency, resulting in higher tariffs and government borrowing. The 10-year yield stood at 4.4415 per cent in Tokyo hours.

President Joe Biden’s faltering debate performance last week was the trigger behind the yield surge, but an additional catalyst came with the Supreme Court’s ruling on Monday that Trump has broad immunity from prosecution over attempts to overturn his 2020 election loss, said Chris Weston, head of research at Pepperstone.

“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,” Weston said.

The yen’s malaise has traders on high alert for Japanese intervention after authorities spent some 9.8 trillion yen ($60.65 billion) in the days spanning late April and early May, when the currency plunged to 160.82 per dollar.

Japanese finance minister Shunichi Suzuki reiterated on Tuesday that officials are watching currency markets with vigilance, but noticeably didn’t repeat a warning that they stood ready to act.

“Market participants continued to ignore his comments and appear to be testing the Ministry of Finance’s resolve to support the JPY,” said Carol Kong, a strategist at Commonwealth Bank of Australia.

“The path of least resistance is therefore further gains in USD/JPY.” As a result, the Nikkei rallied more than 1 per cent, putting it head and shoulders above other major markets in the region.

Hong Kong’s Hang Seng added 0.4 per cent amid gains for property stocks, but mainland blue chips were flat, and the tech-heavy Taiwan benchmark dropped 0.74 per cent.

US S&P 500 futures pointed 0.13 per cent lower, following a 0.27 per cent rise overnight for the cash index.

Pan-European Stoxx 50 futures were off 0.12 per cent, after the Stoxx 600 advanced 0.3 per cent on Monday.

The euro gave back some ground to the dollar on Tuesday following a relief rally, with the far-right National Rally (RN) not taking as many votes as some polls had predicted in France’s weekend election.

Rival political parties have joined forces to try and prevent the RN from taking a majority in Sunday’s second round, bowing out of constituencies where another candidate is better placed. The deadline to drop off the ballot is later on Tuesday.

The euro eased 0.12 per cent to $1.0727, after pushing as high as $1.0776 on Monday for the first time since June 13.

Sterling lost 0.14 per cent to $1.2633.

China’s yuan slumped to a fresh seven-month low, weighed by a broad shift in the central bank’s daily guidance that analysts say indicates authorities are willing to allow the currency to ease further.

In offshore trading, the dollar edged as high as 7.3085 yuan, the highest since mid-November.

US monetary policy will be in focus later in the day, when Federal Reserve Chair Jerome Powell speaks at an event in Sintra, Portugal hosted by the European Central Bank.

A parade of potentially crucial US employment data begins on Tuesday with the JOLTS job openings report, a Fed favourite, followed by ADP numbers a day later and the all-important monthly payrolls figures on Friday.

In energy markets, Brent futures added 0.25 per cent to $86.82 per barrel, building on a 1.9 per cent overnight rally. US West Texas Intermediate (WTI) crude rose 0.17 per cent to $83.52, extending a jump of 2.3 per cent from the previous session.

Meanwhile Japan’s Nikkei share average hit the 40,000 level for the first time in three months on Tuesday, buoyed by a weaker yen and foreign fund flows.

The Nikkei finished 1.12 per cent higher at 40,074.69, reclaiming the psychologically significant 40,000 level for the first time since April 4.