The dollar retreated in Asian trading on Monday as speculation mounted that US authorities could coordinate with Japan to support the yen after a prolonged slide.
The dollar’s weakness came as investors also piled into safe-haven assets, pushing gold past the $5,000 mark for the first time.
Market chatter that the Federal Reserve Bank of New York had queried traders about the yen’s exchange rate sparked the sharpest move, with the Japanese currency rising more than one per cent to trade around 153.89 per dollar.
The yen’s strength was its highest level since November.
The currency has been under pressure amid concerns over Japan’s fiscal outlook, the Bank of Japan’s decision to hold interest rates, and expectations that the US Federal Reserve will pause rate cuts this week.
The latest rally revived memories of the last time Tokyo intervened in currency markets in 2024, when the yen briefly fell to 160 against the dollar.
The intervention speculation weighed on the dollar broadly, with major currencies such as the euro, pound and South Korean won all strengthening. The Singapore dollar also surged to an 11-year high, highlighting the broad shift away from the greenback.
As the dollar softened, gold prices surged by more than two per cent, crossing the $5,000 per ounce threshold for the first time. The precious metal’s rally was also supported by a growing flight to safety, as geopolitical tensions and global economic uncertainties heightened.
Dollar sinks on yen intervention talk, gold breaks $5,000: What markets are watching
The latest intervention talk gained traction after Japan’s top currency official, Atsushi Mimura, said Tokyo would continue to respond appropriately to abnormal FX moves, working closely with US authorities as needed.
Mimura’s remarks came shortly after Japanese Prime Minister Sanae Takaichi warned that authorities would take all necessary steps to counter speculative currency movements.
“The yen’s weakness is no longer a free carry,” said Stephen Innes, head of SPI Asset Management. He added that intervention-tinged language from Tokyo reminded markets that the yen could move sharply in either direction if authorities stepped in.
Lloyd Chan of MUFG said the market’s attention would remain on the potential for joint action between Tokyo and Washington.
He added that the dollar could face volatility in USD/JPY as traders try to anticipate policy shifts from the Bank of Japan and fiscal direction from the Japanese government.
The yen’s surge was enough to pull the dollar lower in early Asian trade, even as liquidity remained thin. With intervention uncertainty lingering, analysts warned of heightened two-way swings in the currency pair.
The dollar’s weakness also fed into gold’s rally. The precious metal reached a peak of $5,111.07 per ounce as traders sought protection against currency volatility and geopolitical risks. Silver, meanwhile, surpassed $109 per ounce, building on its recent record-breaking moves.
Traders have increasingly turned to safe-haven assets amid rising geopolitical concerns, including US tensions with Iran and Venezuela.
The risk-off sentiment was amplified by worries about a possible US government shutdown, which has added to uncertainty in global markets.
“Gold’s price action has been textbook safe-haven behaviour,” said market analyst Fawad Razaqzada. He noted that underlying demand for protection remains strong, as confidence in the dollar and government bonds appears shaky.
Eyes on Fed meeting as dollar slips further
The dollar’s decline comes ahead of the Federal Reserve’s policy meeting later this week, where the central bank is widely expected to maintain current rates.
The Fed has cut rates in the past three meetings, but market expectations now suggest a pause, given inflation and labour market data.
Bank of America economists said they do not expect major policy changes at the January meeting. However, they noted that market pricing could create risks of a dovish surprise, particularly if the Fed signals greater concern about growth or financial stability.
“Chair Powell’s press conference may be dominated by questions about politics rather than policy,” the bank said, referring to ongoing political tensions surrounding the Fed and its leadership.
President Donald Trump has repeatedly criticised Fed Chair Jerome Powell, arguing that inflation is not a concern and questioning the Fed’s competence. The continued political pressure has added another layer of uncertainty to the market outlook.
In equity markets, the dollar’s weakness weighed on shares in Japan, where the stronger yen reduces exporters’ earnings in yen terms. Tokyo’s Nikkei index fell by 1.8 per cent, while other Asian markets such as Shanghai, Singapore and Seoul also declined.
London opened higher, while Paris and Frankfurt saw modest declines. In the US, major indexes ended lower on Friday, continuing the risk-off mood.
Oil prices extended gains after Trump said a US “armada” was heading toward the Gulf, increasing concerns about supply disruptions amid heightened geopolitical tensions. Brent crude and WTI both edged higher in early trading, supported by the risk premium.
What this means for Nigeria and global markets
For emerging markets, the dollar’s weakness may offer short-term relief on external debt servicing and currency pressures.
However, the potential for intervention in the yen and shifting policy expectations could keep global markets on edge.
Investors will continue to watch the Fed meeting closely, as any indication of renewed rate cuts could weaken the dollar further and support gold’s rally.
At the same time, intervention talk in Tokyo may increase volatility in major currency pairs, creating opportunities and risks for traders worldwide.
As the week progresses, market participants will remain focused on the balance between policy direction, geopolitical developments, and safe-haven demand, all of which will shape the next phase of the dollar’s trajectory.
