Dollar hits highest level vs. yen since July 27

The dollar was getting positive support from the turnaround in US stocks on Wednesday. (AFP)

NEW YORK: The dollar hit its highest level against the Japanese yen in nearly four months on Wednesday, as US Treasury debt yields touched multi-month highs following Republican candidate Donald Trump’s victory in the presidential election.
Yields on benchmark 10-year Treasury notes and 30-year bonds rose to their highest levels in nine months, bolstered by expectations that Trump will enact protectionist trade policies that could push wages higher and boost inflation.
Rising inflation tends to erode the value of bonds, pushing yields higher. Higher US interest rates increase the value of the dollar by making dollar-denominated assets more attractive to investors.
“Yields are driving moves and are driving everything we’re seeing in the markets, and as long as they continue to rise you’ll see dollar/yen rise,” said Kathy Lien, managing director of BK Asset Management.
“Dollar/yen is getting positive support from the turnaround in US stocks, positive support from the yield spreads and generally speaking we’re seeing pretty consistent price action across these different markets.”
The dollar reversed earlier selling against the safe-haven yen to rise more than half a percent, touching a high of 105.79 yen, its highest level since July 27. It had previously fallen as much as 4 percent in overnight trading as Trump moved closer to securing the election win over heavily favored rival Hillary Clinton.
Fed fund futures show investors still overwhelmingly expect the US Federal Reserve to raise interest rates at its December policy meeting after being on hold since hiking rates in December 2015.
“The only reason the Fed would forego a rate hike is if stocks crashed tremendously,” Lien said.
“If they close anywhere near where they are right now, up, (Federal Reserve Chairperson Janet) Yellen will be relieved and that is going to resonate with the markets.”
Donald Trump’s victory sent shockwaves through industries that rely on open trade, from airlines to cars and IT outsourcing, although shares of some companies rebounded in afternoon trading.
Throughout his presidential campaign, Trump has vowed to revive the US economy by slashing taxes, preventing companies from making products overseas, renegotiating trade accords and imposing tariffs on imports from countries like China.
“This is part of a much broader problem that we’ve seen in the world, in which countries are turning inwards and reacting against globalization and open borders,” said aerospace analyst Richard Aboulafia, vice president of Virginia-based Teal Group.
In Asia, shares in airlines with significant exposure to global trade, such as cargo giant Korean Airlines, fell as much as 5 percent as Trump closed in on the White House.
Air China’s Hong Kong-listed shares tumbled to their lowest level since June, and automakers like Toyota, for whom the US is a top market, fell 6.5 percent.
Many executives remain unsure what Trump’s protectionist rhetoric will mean in practice.
Shares of the three largest US airlines — American , Delta and United — rose more than 1 percent in afternoon trade.
“We would think they would be down today, but I’m thinking that it’s a play on more economic growth” from new policies, said Jim Corridore, analyst at CFRA Research. Protectionism “would be a longer term (outcome) that would hang over the industry but it’s going to take a long time to get to that point.”
Investors at a major Airline Economics finance gathering in Hong Kong last week expressed alarm at a surge in unconventional politics from Britain to Washington and the Philippines — a trend that many expect will leave its mark regardless of how it translates into real policies.
That comes as an industry that depends entirely on the flow of goods and people faces doubts over its own economic cycle.
“We have seen a large section of the population that has not benefited in the past decade and we are seeing support for populist politicians with simple answers,” Brian Pearce, chief economist of the International Air Transport Association told Reuters ahead of the election.
“Unfortunately, a lot of those answers are for protectionist policy solutions and air transport flourishes with open borders, so that is quite a dangerous development.”
International trips make up 64 percent of global air traffic, according to IATA.
Executives at US auto companies said they were concerned about Trump’s stance on free trade, especially his tough talk on the North American Free Trade Agreement. They all have production sites in Mexico.
But industry executives and analysts said aviation had a history of riding out economic and political shocks. On average, plane makers insist, air traffic doubles every 15 years.
“If there are brakes on trade, there could be some impact on international travel. But you have seen more or less 5 percent annual growth in traffic for decades,” said veteran US aerospace consultant Jerrold Lundquist, managing director of The Lundquist Group.
And the defense industry could benefit, as a Trump administration spends more on the military and encourages even allies to shoulder more of the security cost. Defense stocks, including listed land mine manufacturer Ishikawa Seisaku, jumped.