Dollar Selloff Accelerates as Risk Rally and Yen Surge Take Hold

The risk-on tone is being driven by a standout earnings season. Alphabet delivered a blockbuster quarter, with its cloud business posting 63% growth—the fastest since 2020—offering clear evidence that the AI boom is translating into real revenue. This has helped push S&P 500 and NASDAQ to fresh record highs, reinforcing confidence that corporate America can sustain growth even in a high-rate environment. That confidence is not limited to tech. Caterpillar provided strong forward guidance, effectively giving the ‘all-clear’ signal for the industrial sector. Its outlook suggests that infrastructure and energy demand remain robust, and that the broader economy is holding up better than many had feared. At the same time, markets are showing a remarkable ability to look past geopolitical risks. The surge in oil prices earlier this week and ongoing tensions around Iran have failed to derail sentiment. Instead, investors are treating these developments as background noise, focusing on earnings and growth instead. Yen, however, is anything but background noise. After sliding past 160 earlier in the week, USD/JPY has reversed sharply, with the Yen staging a powerful rebound. The move has been driven by what traders see as a ‘final warning’ from Japanese authorities, triggering a rapid unwind of short positions. Japan’s top currency diplomat declined to confirm direct intervention, stating, ‘I won’t comment on what we’ll do ahead,’ while noting that Golden Week holidays have begun. However, the market has largely interpreted recent developments as a ‘de facto’ confirmation of action. Adding to that perception, Japan’s Nikkei reported, citing government sources, that both the Ministry of Finance and the Bank of Japan had stepped in. In Japan’s communication framework, such reporting is often seen as an unofficial signal, reinforcing the credibility of intervention and amplifying its market impact. In practice, it may not matter whether Japan has actually intervened. The market has acted as if it has. Short Yen positions have been aggressively covered, and fresh longs are emerging as traders bet that authorities will continue to defend the currency. The combined effect of risk-on flows and Yen strength has left Dollar under broad pressure. For the week, Yen is the clear outperformer, while Dollar is the weakest. Loonie and Aussie are benefiting from the risk backdrop, while Euro and Kiwi are lagging. Sterling sits in the middle, supported by a mildly hawkish signal from the Bank of England. In Japan, at the time of writing, Nikkei is up 0.61%. 10-year JGB yield is down -0.019 at 2.506.