The yen swung across a 1.31-yen range in Tokyo on Wednesday as markets reacted to the U.S. midterm elections, strengthening to 157.41 per dollar from 158.72 earlier in the session, Bank of Japan data showed. The gain did not last. At 6:29 a.m. in Tokyo on Thursday, the dollar bought 158.43 yen, according to Nikkei market data, only slightly below its New York close on Tuesday.

For investors in Asia, the round trip was a live test of the yen's standing as a hedge. The currency rallied while Tokyo stocks were falling hard and U.S. Treasury yields were dropping, then lost ground once those moves faded. That left it about six yen from the 164 per dollar that Finance Minister Satsuki Katayama said on Monday the yen had reached at one point.

How the yen moved from Tokyo to New York

The yen started the day on the back foot. In New York on Tuesday it closed at 158.65 to 158.75 per dollar after touching 158.76, its weakest level since Oct. 14, Nikkei reported. U.S. figures released that day showed 7.523 million job openings in September, above the 7.1 million forecast in a Dow Jones survey, which pushed Treasury yields higher and lifted bets on a further Fed rate increase.

Early in Tokyo on Wednesday, the yen weakened to 158.72, its weakest level in Tokyo trading since Sept. 25, BOJ figures show. Then the U.S. vote count got under way. As early returns came in during the Tokyo morning, the 10-year Treasury yield fell into the high 4.8% range and traders bought yen on the view that the gap between U.S. and Japanese rates could narrow, Nikkei reported. A dip in U.S. crude below the previous settlement of $96.09 a barrel also helped by easing worries about Japan's trade balance, the newspaper said.

Stocks added to the demand. The Nikkei 225 slid in a tech-led selloff, falling as much as 4.8% at one point as chip and AI-related shares slumped, according to a Bloomberg report carried by The Japan Times. The index closed down 893.23 points at 62,188.63, a drop of about 1.4%, Jiji Press reported.

The rally stalled in the afternoon. The fall in Treasury yields paused and yen buying slowed, Nikkei said. At 5 p.m. the dollar stood at 158.07 to 158.09 yen, up from 157.74 to 157.76 at the same time Monday, the previous Tokyo trading day, according to BOJ data. Wednesday's range was the widest in Tokyo since Oct. 22.

Europe brought more yen selling against other currencies. The euro rose to about $1.1273, its highest in roughly a month, and reached about 178.45 yen, the yen's weakest against the euro in about a month, Nikkei reported from London. The pound touched its strongest against the yen in about two months. Against the dollar, the yen was little changed at 158.40 to 158.50 at 4 p.m. U.K. time.

After the New York stock market closed on Wednesday, Nikkei market data showed the Dow Jones Industrial Average up 3.03% at 53,356.12 and U.S. crude down nearly 8% at about $88.50 a barrel. The yen stayed near 158.4.

A hedge that works only while stocks fall

Goldman Sachs strategists including Kamakshya Trivedi argued in a note dated Oct. 23 that the yen was becoming a more effective hedge against an AI-driven market shock, The Japan Times reported. “Short USD/JPY should be the most effective hedge against general growth wobbles,” they wrote. During the tech selloff of Oct. 22 and 23, the yen climbed as far as 156.08 per dollar in Tokyo, BOJ data show. Wednesday's high fell well short of that.

Interest rates explain much of the pull. The Federal Reserve held its target range at 3.75% to 4% on Oct. 28 in a 10-2 vote, with Lisa Cook and Beth Hammack preferring a quarter-point increase. Two days later, the BOJ kept its policy rate at 1.25% in an 8-1 vote, with board member Hajime Takata proposing 1.5%. That leaves a gap of 2.5 to 2.75 percentage points in favor of the dollar.

Nikkei's report on Tuesday's New York session cited a view in the market that lower expected volatility made it easier to sell the low-yielding yen for higher-yielding dollars. Calm markets favor that trade. A sharp equity selloff interrupts it, as happened for a few hours on Wednesday.

Tokyo's warnings and the BOJ calendar

Katayama repeated Tokyo's warning on Monday, the day before the U.S. vote. “If there are disorderly movements or excessively speculative moves, we will take action,” she told reporters, according to Bloomberg. The ministry's transcript of her news conference shows she said a joint statement with her U.S. counterpart remains in force and that officials would never say whether the current level is right or wrong.

Tokyo has relied on words lately. The ministry reported zero intervention from Sept. 29 through Oct. 28, as Capital Times reported.

The BOJ is the other lever. Governor Kazuo Ueda said on Oct. 30 that underlying inflation was “generally consistent” with the 2% target and that the bank would adjust policy to keep it there, Jiji Press reported. He also said the goal had yet to be met on a lasting, stable basis.

The BOJ publishes a summary of opinions from its October meeting on Nov. 10 and holds its next policy meeting on Dec. 17-18.