The United States dollar weakened broadly on Monday, while the Japan yen climbed to a more than two-month high, as markets speculated about the possibility of coordinated currency intervention involving U.S. authorities. The move followed comments from Japan’s prime minister and the country’s top currency diplomat, which heightened expectations of official action.
Traders also reduced dollar exposure ahead of this week’s Federal Reserve policy meeting and amid the prospect that the Trump administration could soon announce a new Fed chair. Additional pressure on the greenback came from concerns over a potential U.S. government shutdown.
The dollar fell 1.3% against the yen to 153.73, putting it on track for nearly a 3% decline over the past two sessions. This marked the sharpest drop since August 2024, when the yen strengthened significantly as investors unwound yen carry trades.
Attention remained firmly on Tokyo after Prime Minister Sanae Takaichi said on Sunday that her government would take “necessary steps” to counter speculative moves in currency markets.
Signals point toward possible intervention
Market focus intensified after a Reuters source said the New York Federal Reserve had checked dollar-yen rates with dealers on Friday—a step widely viewed as a potential precursor to intervention. The scramble to cover short yen positions lifted the currency more than 3% from Friday’s lows.
“If both Japan’s Ministry of Finance and the U.S. Treasury are aiming to cap gains in dollar-yen, that becomes a far more powerful driver,” said Dominic Bunning, head of G10 FX strategy at Nomura.
Japanese Finance Minister Satsuki Katayama declined to comment on the rate checks, while currency diplomat Atsushi Mimura said Japan would maintain close coordination with the United States and act as appropriate in foreign-exchange markets.
The U.S. last participated in coordinated intervention to support the yen in March 2011, following the Fukushima earthquake.
Despite the yen’s rebound, concerns remain about Japan’s heavy public debt, which exceeds twice the size of its economy. Rising global interest rates have fuelled fears over debt sustainability, although Takaichi has pledged tax cuts as she campaigns ahead of a snap election on February 8. Meanwhile, Bank of Japan data suggested Friday’s sharp yen move was unlikely to have been driven by direct official intervention.
Dollar slide lifts euro and sterling
Broad dollar selling boosted other major currencies. The Euro and the British pound both climbed to four-month highs, while the Australian dollar reached its strongest level since September 2024.
The euro rose 0.4% to $1.1857, sterling gained 0.3% to $1.36945, and the Aussie advanced 0.4% to $0.6922.
Jonathan Petersen, macro strategist at Variant Perception, described the move as a renewed “sell America” trade, pointing to prediction markets that have revived fears of a government shutdown.
Political uncertainty added to market jitters after Senate Democratic leader Chuck Schumer said his party would oppose funding legislation tied to the Department of Homeland Security. Lawmakers face a January 30 deadline to avert a partial shutdown.
“The dollar was already fragile, but the yen’s surge triggered a broader selloff,” said Marc Chandler of Bannockburn Capital Markets.
U.S. President Donald Trump said last week he would soon name his nominee to replace Fed Chair Jerome Powell. Markets currently expect no rate change at Wednesday’s Fed decision, but anticipate guidance pointing to further easing, with roughly 50 basis points of cuts priced in for the year.
