The Japanese yen jumped to a session high against the dollar on Wednesday after the US Treasury bond yield curve inverted for the first time since 2007 and investors, gripped by fear of a looming global recession, fled to the safety of perceived safe-haven assets.
An inversion of the yield curve - when the spread between 2- and 10-year Treasury yields falls below zero - is an indicator of coming recession. The chill the inverted curve sent through global markets was compounded by weak data from China and Germany and waning optimism about progress reported in US-China trade talks on Tuesday.
The yen, already stronger on the day, was boosted by the inversion and was trading up 0.73% at 105.94, though still off a 1-1/2-year high -excepting a flash crash in January - hit Monday.
On Tuesday, the dollar gained dramatically against the yen after US President Donald Trump backed off his Sept. 1 deadline for imposing 10% tariffs on remaining Chinese imports, delaying duties on cellphones, laptops and other consumer goods. The announcement came after renewed trade discussions between US and Chinese officials.
The dollar index, a measure of the dollar against a basket of currencies, was 0.15% higher in midmorning trade at 97.959. While an inverted yield curve may have raised fears about the US economy, fundamentals in other G10 countries look worse, boosting the dollar's appeal.