USDJPY hits 40-year high near 163 as dollar rallies broadly

The dollar surged to a 40-year high against the yen above 163 on Tuesday, extending a rally that has pushed the greenback higher against nearly every major currency except the Australian dollar.

USDJPY touched 163.18, approaching the record levels set earlier this month near 162.85, as the gap between US and Japanese interest rates continued to drive yen weakness. The move came despite repeated warnings from Japanese officials about potential intervention.

"The dollar's momentum against the yen has been relentless," said Sarah Lin, markets reporter at Edgen. "Traders are testing the Bank of Japan's resolve with the pair now at levels that historically triggered intervention."

The US Dollar Index rose 0.25% to 101.20, with gains concentrated against the yen and European currencies. EUR/USD slipped to 1.1399, while GBP/USD traded at 1.3377. The Australian dollar was the sole outperformer, gaining 0.11% against the greenback to $0.7001.

Equities rebound as China steps in

Asian and European equities bounced back after a rough start to the week, aided by state-backed investor support in China. MSCI's Asia Pacific Index had fallen nearly 3.8% last week and slipped further Monday before rebounding Tuesday. Hong Kong and India were the exceptions, remaining in negative territory.

Europe's Stoxx 600 rose 0.45% in late morning trading, recovering from a 0.3% decline Monday. US index futures pointed to a stronger open, with the Nasdaq up 1.3% and the S&P 500 gaining 0.5% to around 7,505.

The equity rebound coincided with a stabilization in short-term US rates after Monday's selloff pushed the two-year yield higher. The euro had been sold to four-day lows just above $1.14 on Monday as US rates rose, but stabilized Tuesday alongside the yield move.

CAD recovers from tariff shock

The Canadian dollar recovered some ground after plunging Monday on the US threat of 50% tariffs under Section 338. USD/CAD traded at 1.4110, pulling back from the spike triggered by the tariff announcement. The loonie had risen about 1.7% from its late June low through early Monday before the tariff news reversed those gains.

Canada's June CPI came in below expectations, reinforcing the view that underlying price pressures are easing. That data initially weighed on the loonie before the tariff story dominated.

What's at stake

The dollar's surge to multi-decade highs against the yen carries significant risks for global markets. A further breakout above 163 could trigger intervention from the Bank of Japan, as it did in 2024 when USDJPY approached similar levels. For equity investors, a stronger dollar typically weighs on emerging market currencies and commodities priced in dollars, while benefiting US exporters through improved terms of trade.

The next major test for USDJPY comes with this week's US GDP data and the Federal Reserve's preferred inflation gauge, the core PCE deflator, both of which will shape expectations for the rate path through year-end.

This article is for informational purposes only and does not constitute investment advice.