The Japanese Yen (JPY) holds firm against the US Dollar (USD) on Monday, supported by broad Yen strength as markets price in rising intervention risks. At the time of writing, USD/JPY is trading around 154.00, after sliding to an intraday low of 153.31, hovering near its lowest level since November.
USD/JPY tumbled nearly 1.65% on Friday after trading close to levels that have previously triggered official intervention. The move followed reports that the New York Fed conducted “rate checks” on behalf of the US Treasury, fueling speculation about possible coordinated action to stabilize the currency amid concerns over excessive weakness.
However, there has been no official confirmation of any direct intervention so far. The renewed speculation comes against the backdrop of repeated verbal warnings from Japanese authorities, who have stressed they are closely monitoring FX markets and have cautioned that recent one-sided moves in the Yen do not reflect underlying economic fundamentals.
Japanese officials reinforced that message on Monday. Finance Minister Satsuki Katayama said the government is watching currency moves with a “high sense of urgency,” while Chief Cabinet Secretary Seiji Kihara said Japan will take appropriate action in the FX market in line with the Japan-US joint statement.
Still, the Yen’s advance has so far lacked aggressive follow-through, as rising fiscal and political uncertainty in Japan remains a drag on sentiment, limiting the Yen’s upside despite heightened intervention speculation.
Prime Minister Sanae Takaichi’s decision to dissolve the lower house and call a snap election has revived worries that a more expansionary fiscal stance could lie ahead, keeping investors cautious about Japan’s already heavy public debt burden.
Meanwhile, a broadly weaker US Dollar is keeping USD/JPY’s upside in check. The Greenback remains under sustained selling pressure as investors continue to trim Dollar exposure amid unease over US President Donald Trump’s trade rhetoric and concerns about Federal Reserve (Fed) independence.
The US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is trading near four-month lows around 96.98.
Looking ahead, traders are awaiting the Fed’s interest rate decision due on Wednesday. Markets are widely pricing in a hold at the upcoming meeting, leaving the focus squarely on Chair Jerome Powell’s press conference for signals on the monetary policy outlook.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
