USD/JPY Hits 40-Year High as Dollar Dominates FX Session

The U.S. dollar surged to a 40-year high against the Japanese yen on Monday, July 21, as rising U.S. Treasury yields and a persistent gap between American and Japanese monetary policy drove USD/JPY to territory last seen in the mid-1980s. The yen was the session's worst-performing major currency, falling 0.42% against the greenback, underscoring how deeply entrenched the policy divergence between the Federal Reserve and the Bank of Japan remains.

Across the broader FX complex, the dollar closed higher against nearly every major peer. The Swiss franc shed 0.37% against the greenback, while the Canadian dollar dropped 0.26% as markets continued to digest President Trump's latest tariff threats against Canada — threats that Canadian Prime Minister Mark Carney publicly labeled a violation of the USMCA trade agreement. U.S. Trade Representative Greer pushed back, arguing Canada was offering other nations more favorable trade terms.

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The one bright spot for dollar bears was the Australian dollar, which edged up a modest 0.11% against the greenback. The AUD/USD pair had tested a key 38.2% Fibonacci retracement level before pulling back, suggesting technical resistance is capping further Aussie gains for now. The euro, meanwhile, slipped a narrow 0.11% against the dollar in relatively thin trading.

Beyond currencies, crude oil futures settled at $84.91 as Middle East tensions intensified and President Trump reportedly rejected a proposal for a 10-day ceasefire with Iran. On the domestic economic front, Treasury Secretary Scott Bessent said 3% GDP growth is not an unreasonable target, while ADP's weekly employment pulse came in at 16,500 new jobs, down from 19,750 the prior week, hinting at some softening in labor market momentum.

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