TOKYO, July 2 Reuters The U.S. dollar hit a near 38year high to the yen on Tuesday following a surge in Treasury yields as investors contemplated prospects of a second Donald Trump presidency.

Japan39;s weak currency helped lift the Nikkei above the psychological 40,000 mark for the first time in three months, making the index an outlier as many other regional stock markets struggled.

Crude oil rose, building on a strong rally in the previous session, as the northern hemisphere summer driving season got underway.

The dollar rose as high as 161.745 yen on Tuesday, a level not seen since December 1986.

The currency pair is highly sensitive to U.S. yields and the benchmark 10year Treasury yield climbed nearly 14 basis points to 4.479 to start the week.

Analysts attributed the move to expectations for Trump winning the presidency, resulting in higher tariffs and government borrowing. The 10year yield stood at 4.4415 in Tokyo hours.

President Joe Biden39;s faltering debate performance last week was the trigger behind the yield surge, but an additional catalyst came with the Supreme Court39;s ruling on Monday that Trump has broad immunity from prosecution over attempts to overturn his 2020 election loss, said Chris Weston, head of research at Pepperstone.

Bond traders have an eye on Trump39;s increasing odds of taking the White House, and the market senses Trump 2.0 will be inflationary, Weston said.

The yen39;s malaise has traders on high alert for Japanese…