Signals from Tokyo triggered a sharp currency move, while rising energy costs added a new complication for investors already unsettled by bond markets.
The Japanese yen strengthened sharply against the dollar on September 2, posting its biggest gain in a month following a joint currency intervention by the United States and Japan. Meanwhile, yields on Japanese and European bonds climbed to new all-time highs, while U.S. Treasuries barely reacted to the broader sell-off in the debt market. U.S. stock indexes ended the session higher.
According to Reuters
Key moves in the financial markets
Asian stock markets suffered notable declines: Japanese shares fell by around 3%, while South Korean stocks dropped 4%. European markets ended the session near their previous levels. The S&P 500 and the technology-heavy Nasdaq gained about 0.5%.
In the U.S. market, shares of 10 of the 11 S&P 500 sectors rose. Communication services companies posted the strongest performance, gaining around 1%. The real estate sector fell 0.8%.
Dell shares jumped 16% on strong demand for artificial intelligence servers and an upgraded full-year forecast. Nvidia shares rose 3%. By contrast, Broadcom shares fell 7% after the market closed following the release of its third-quarter results.
In the currency market, the dollar-yen pair fell by around 1%, dropping below 159 yen per dollar. The Brazilian real strengthened the most among major currencies, gaining 1.2%.
The yield on 10-year Japanese government bonds rose to 3.015%. Yields on British government bonds reached their highest level in nearly 20 years.
Oil prices rose by around 1% to reach a six-week high.
Yen responds to signals from Tokyo
The yen’s jump came after Japanese officials signaled that interest rates could be raised at the end of September. U.S. Treasury Secretary Scott Bessent also appeared to support a tighter monetary policy in Japan.
The yen’s approximately 1% rise was its strongest since the joint currency intervention by the United States and Japan a month ago. Analysts suggested that central banks may have been involved in the move. However, it most likely did not involve direct yen purchases, but rather what is known as a rate check – a practice in which a regulator assesses actual conditions in the foreign-exchange market.
The situation intensified debate over Washington’s growing influence on Tokyo’s economic policy. The United States took part in the currency operation a month ago, and the U.S. Treasury is evidently concerned about an exchange rate above 160 yen per dollar. Washington also wants to prevent a scenario in which Japan sells U.S. government bonds to support its own currency.
Weak U.S. hiring does not guarantee rate cuts
U.S. labor-market data released ahead of the key nonfarm payrolls report points to extremely subdued hiring.
According to the latest Job Openings and Labor Turnover Survey, the number of job openings increased by 89,000 in July, while hiring fell by 278,000. Data from ADP showed that private-sector employment in the United States increased by just 38,000 in August, below expectations.
The weak figures could support advocates of a softer Federal Reserve policy, but a very strong negative surprise in Friday’s report would be needed to put rate cuts back on the agenda. The center of debate at the Fed is shifting toward higher rates.
U.S. President Donald Trump may be unhappy with this approach. However, if higher rates curb inflation, flatten the yield curve, and reduce long-term borrowing costs, including mortgage rates, they could ultimately win his support.
Oil adds to pressure on bonds
Fiscal risks, the crowding out of traditional borrowing by large-scale financing for artificial intelligence projects, a higher risk premium, and a new investment boom are among the factors cited for rising bond yields. At the same time, surging oil prices are becoming an increasingly important factor.
The price of benchmark crude has risen by 25% in less than a month and by more than 40% over the past year. The relationship between oil prices and the yield on 10-year U.S. Treasury bonds has also strengthened noticeably.
A further rise in energy prices could begin to constrain consumer spending, as more expensive fuel and heating reduce the funds households have available for other goods and services. Consumer reactions and new employment data may determine the direction of markets in the coming sessions.
