The yen fell on Tuesday to its lowest in over two weeks against the dollar and euro, as a weekend election victory by Japan’s ruling coalition paved the way for more stimulus, rekindling investor appetite for stocks and risk assets worldwide.
A rebound in equity markets across the globe with the Standard & Poor’s 500 stock index hitting record highs has led investors to reduce their safe haven holdings of yen, gold and U.S. Treasuries in the wake of the Britain’s vote to leave the European Union on June 23.
The dollar jumped 2.2 percent against the Japanese currency at 104.90 yen, its strongest since June 24, when the British referendum result roiled global markets.
The euro briefly climbed above 116 yen to its highest since June 24. It was last up 2.15 percent at 116.10 yen.
“This is definitely an ‘oversold’ rally. We are also see a breakdown in the U.S. bond market,” said Rob Zukowski, senior technical analyst at New York-based 4Cast Ltd.
Benchmark U.S. 10-year yield reached 1.50 percent, its highest level in over a week.
The selling in yen and low-yielding government debt was underpinned by an upbeat June U.S. jobs report on Friday and promise from Japanese Prime Minister Shinzo Abe on Monday to stimulate the Japanese economy.
Japanese Economy Minister Nobuteru Ishihara said on Tuesday he would start discussions on the stimulus package’s size, which may be more than 10 trillion yen, and the government may issue construction bonds, which are earmarked for public works projects.
Commodity currencies including the Australian and New Zealand dollar jumped as risk appetite returned. The New Zealand dollar hit a 14-month high of $0.7318 while the Australian dollar rose 1.47 percent against the greenback.
Sterling rose sharply with interior minister, Theresa May, set to become Britain’s prime minister on Wednesday, easing political tensions that had ratcheted up after the Brexit vote.
The pound rose 2.10 percent to $1.3265, pulling further away from a 31-year low of $1.2798 set last week, though investors remain uncertain about May’s approach to negotiating Britain’s departure from the EU.
Bank of England Governor Mark Carney said on Tuesday the Bank, whose monetary policy committee meets on Thursday, was ready to provide more stimulus to cushion the British economy.
“We see more downside for the pound both on Thursday and the months ahead,” said Josh O’Byrne, Citi currency strategist in London