The U.S. dollar edged lower on Monday after posting gains in the previous week, while the Japanese yen saw a modest rebound as renewed concerns over potential government intervention resurfaced.
Asian markets showed little reaction after the People’s Bank of China kept a key benchmark interest rate unchanged, a move that had been widely anticipated by investors.
Overall market sentiment remained cautious, with risk appetite weighed down by escalating geopolitical tensions between the United States and Venezuela. Investors were also closely monitoring renewed hostilities involving Israel and Iran, adding to global uncertainty.
The dollar had found support last week after softer inflation data failed to convince markets that the Federal Reserve would move quickly toward additional interest rate cuts. Attention is now firmly on December’s inflation figures, which analysts believe will play a more decisive role in shaping near-term monetary policy expectations.
Japanese yen firms slightly amid intervention warnings
The Japanese yen strengthened slightly, with the USD/JPY pair falling about 0.2% to near 157.45, although the currency remains close to levels last seen in January.
The yen’s modest recovery followed comments from Japan’s top currency official, Atsushi Mimura, who warned that authorities were prepared to take “appropriate” measures to counter excessive volatility in foreign exchange markets.
Despite Monday’s gains, the yen has weakened steadily in recent weeks, pressured by growing concerns over Japan’s fiscal outlook and a deteriorating diplomatic relationship with China.
An interest rate hike and more hawkish messaging from the Bank of Japan last week failed to halt the currency’s decline, as markets were left disappointed by the lack of clear guidance on future policy moves.
Analysts at OCBC noted that downside risks for the yen remain, citing the slow pace of policy normalization by the BOJ and ongoing concerns around fiscal expansion as factors that could continue to weigh on the currency in the near term.
Elsewhere in currency markets, the euro gained modestly, with EUR/USD rising around 0.2%, while the British pound outperformed most major peers. GBP/USD climbed approximately 0.35%, making sterling the strongest-performing major currency on the day.
