Two developments that should have made this a clean risk-on session have instead split the tape in half. Washington joined Tokyo in buying yen, and President Trump called off a planned strike on Iran to restart negotiations over the Strait of Hormuz. Wall Street took both at face value. Asia did not.
A Currency Defence With Two Owners
Japan's Ministry of Finance confirmed on Monday that Friday's yen-buying operation was carried out jointly with the US Treasury, the first coordinated action of its kind between the two countries since 1998. Treasury Secretary Scott Bessent said Washington would not hesitate to intervene again, and endorsed Tokyo's view that the currency is substantially undervalued. USD/JPY, which had been trading near 164 and a four-decade low for the yen, now sits near 157 after three sessions of yen gains.
The more instructive detail is why the United States agreed to help at all. A persistently weak yen pressures Japanese government bonds, and rising JGB yields feed straight into an already strained US Treasury market. The Ministry of Finance also flagged that it intends to use the Federal Reserve's FIMA repo facility: a mechanism that lets it raise dollars against its Treasury holdings rather than selling them outright. That removes the awkward scenario in which Japan defends its currency by dumping the very bonds Washington needs to bid.
The Nikkei Pays for It
Japanese equities fell for a second consecutive session, with the Topix also lower and the damage concentrated in technology. Kioxia, SoftBank Group and Advantest all gave back ground, and Mitsubishi UFJ and Fast Retailing followed them down. This is the trade-off Tokyo has accepted: a stronger yen shrinks the translated earnings of an export-heavy index and removes the currency-driven discount that has been pulling foreign money into Japan. The Bank of Japan left its policy rate at 1% last week, so nothing about the underlying rate differential has changed. Only the willingness to fight it has.
Wall Street's overnight session does not explain the weakness either. Scepticism about returns on artificial intelligence spending is still doing damage across Asian semiconductors, with South Korea's market swinging violently in both directions for a third week.
Oil Down, Yields Down, Dow Up
Brent fell sharply after Trump suspended the strike, with Iran denying direct talks while pointing to progress through Omani channels. Cheaper crude pulled Treasury yields lower and carried the Dow Jones Industrial Average to a record close. That relief is conditional, though. The Federal Open Market Committee held at 3.50–3.75% last week with three members voting for a hike, and markets are still pricing tightening rather than easing before year-end. Falling energy prices are the only thing currently softening that case.
Attention now turns to the June JOLTS Job Openings report, a heavy earnings slate including Advanced Micro Devices, Caterpillar and McDonald's, and Friday's Nonfarm Payrolls. A breakdown in the Iran talks would put oil and the inflation problem straight back on the table, and another leg of yen strength would take the Nikkei with it.