The US dollar faced broad-based selling on Monday, while the Japanese yen surged to a two-and-a-half-month high. The move came after comments from Japanese officials fueled speculation about potential joint US-Japan currency market intervention.
Policy Signals Drive Market Moves
The yen's strength followed remarks from Japanese authorities, with USD/JPY dropping nearly 3% over two trading sessions - the biggest decline since the 'tariff turmoil day' last April.
- The Bank of Japan and US Treasury coordination potential is being viewed as a key market signal.
- Investors reduced dollar long positions ahead of the Federal Reserve's critical meeting.
- Concerns about a potential US government shutdown also weighed on the greenback.
Intervention Prelude Emerging
A source revealed the New York Fed had inquired about USD/JPY pricing - typically seen as a precursor to actual market intervention.
Nomura's G10 FX strategist Dominic Bunning noted, 'If both the MOF and US Treasury want to cap dollar/yen gains, that creates a stronger dynamic.'
Temporary Impact Expected
Goldman Sachs analysts acknowledged the stronger intervention signals compared to 2022 and 2024, but cautioned that direct action often has only temporary effects when broader macroeconomic fundamentals support the currency's strength.