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Japan's Nikkei rises in relief rally after priced-in

election

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US dollar subdued as investors await tariff clarity

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Fed independence remains a worry for investors

By Ankur Banerjee

SINGAPORE, July 22 (Reuters) - Asian share markets held

their ground near a four-year peak on Tuesday, buoyed by Wall

Street's closing record high ahead of a slate of corporate

earnings while investors took stock of tariff negotiations

between the U.S. and its trading partners.

The Japanese markets returned to action after a holiday in

the previous session following the weekend's election where the

ruling coalition suffered a defeat in upper house elections,

although Prime Minister Shigeru Ishiba vowed to remain in his

post.

Japanese shares briefly jumped at the open

before trading modestly higher, while bonds had a muted reaction

as the election results were largely priced in and were not as

bad as investors had feared. The yen rallied 1% on

Monday, recouping some of the losses from past weeks and was

last little changed at 147.46 per dollar on Tuesday.

Kristina Clifton, an economist at the Commonwealth Bank of

Australia, said the weakening of Ishiba's leadership will open

the door to more fiscal expansion which is negative for Japanese

assets, including the yen.

"The bottom line is longer term Japanese government bond

yields and JPY can fall if concerns about Japan's fiscal

spending deepen."

MSCI's broadest index of Asia-Pacific shares outside Japan

hit its highest level since October 2021 in

early Asian hours but was last little changed. The index is up

nearly 16% this year.

Overnight, the S&P 500 and the Nasdaq notched

record-high closes on Monday, lifted by Alphabet and other

megacaps ahead of a burst of earnings reports this week.

Investor focus has been on tariff negotiations ahead of the

August 1 deadline with the European Union exploring a broader

set of possible countermeasures against the United States as

prospects for an acceptable agreement with Washington fade.

The most important deals for the global outlook are with the

EU and Japan, CBA's Clifton said.

"The USD reaction to the announcement of trade deals with

these countries would depend on the details of the deals in our

view," Clifton said, noting the dollar could turn down again

against the euro and the British pound.

The euro was steady at $1.1689, after rising 0.5%

in the previous session but still away from the near four-year

high it touched at the start of the month. The single currency

is up 13% this year as investors look for alternatives to U.S.

assets bruised by tariff uncertainties.

The dollar index measure against six other key

currencies was at 97.905.

The rumblings around the Federal Reserve's independence and

whether U.S. President Donald Trump will fire Fed Chair Jerome

Powell have kept investors on tenterhooks in recent weeks.

Trump appeared near the point of trying to fire Powell last

week, but backed off with a nod to the market disruption that

would likely follow.

U.S. Treasury Secretary Scott Bessent on Monday said the

entire Federal Reserve needed to be examined as an institution

and whether it had been successful, further exacerbating worries

about the independence of the U.S. central bank.

The Fed is widely expected to hold rates steady in its July

meeting but might lower rates later in the year. Market focus

will be squarely on Powell's speech later on Tuesday for clues

about when the Fed might ease policy.

Goldman Sachs strategists expect the Fed to deliver three

consecutive 25-basis-point cuts starting in September, "provided

inflation expectations remain in check amidst worries about Fed

independence."

In commodities, oil prices edged lower on concerns that the

brewing trade war between major crude consumers the U.S. and the

European Union will curb fuel demand.

Brent crude futures fell 0.35%, to $68.97 a barrel,

while U.S. West Texas Intermediate crude eased 0.31% to

$66.99 per barrel.