Yen Surges to Two-Month High Amid Speculation of U.S.-Japan Intervention

Market Reactions to Yen's Surge

By Gregor Stuart Hunter

Speculation of Intervention

NEW YORK/SINGAPORE, Jan 26 (Reuters) - The yen jumped to more than a two-month high on Monday as speculation mounted that coordinated intervention by authorities in the U.S. and Japan could be imminent, a prospect Tokyo's top currency diplomat left wide open while keeping markets guessing.

Impact on Other Currencies

Investors were also trimming dollar positions ahead of a Federal Reserve meeting and possible announcement by the Trump administration of a new Fed chairman.

Federal Reserve's Role

The yen rose as much as 1.2% to 153.89 per dollar, its strongest since November. The euro made a four-month high of $1.1898 and was last up 0.4% at $1.18665.

Trade was thinned by holidays in Auckland and Australia, putting focus on the Tokyo open around midnight GMT after Japan's Prime Minister on Sunday said her government would take "necessary steps" against speculative market moves.

A source told Reuters that the New York Federal Reserve had checked dollar/yen rates with dealers, seen as a precursor to intervention, and the scramble to get out of short yen positions has the currency some 3% off Friday's low.

Japanese Finance Minister Satsuki Katayama declined to comment on the rate checks, while top currency diplomat Atsushi Mimura said the government will maintain close coordination with the United States on foreign exchange and act appropriately.

The yen had its largest one-day gain on the dollar for nearly six months on Friday, with spikes in late Asia trade and again in the New York session.

The U.S. dollar index, which measures the greenback's strength against a basket of six currencies, was down 0.1% at 97.082, nearing a four-month low.

"Rates being checked on Friday and then stronger talk over the weekend have all contributed," said Nick Twidale, chief market strategist at ATFX Global in Sydney.

The rare involvement of the Fed also has traders on edge, said Eugene Epstein, head of trading and structured products at Moneycorp in New Jersey, figuring intervention could be a joint U.S.-Japan effort and stand a stronger chance of success.

The move was a "game changer" in the FX market, said Tim Kelleher, head of institutional FX Sales at Commonwealth Bank of Australia in Auckland. "That's the first time the Fed has checked a currency in more than a decade," he said. "They've threatened before, but to physically go and do it is a big change in their MO."

The U.S. has not joined a coordinated effort to intervene in the Japanese currency since March 2011, when it sold yen following the Fukushima earthquake.

Spillover dollar selling on Monday helped push the British pound and the New Zealand dollar to four-month highs, while the Australian dollar hit its strongest since September 2024.

Sterling was 0.1% higher at $1.36615, while the Aussie advanced 0.3% to $0.69165 and the kiwi rose 0.2% to $0.59605.

"The dollar has been fragile anyway, but the gain in the yen has been the precipitating trigger for the market to sell it across the board," said Marc Chandler, chief market strategist at Bannockburn Capital Markets in New York.

"There are lot of things going on right now in the U.S. like the protests against the latest Minnesota shooting. Trump could also be naming the successor to Jay Powell this week. So the markets are nervous about both."

U.S. President Donald Trump said on Thursday he would soon announce his pick for the next Federal Reserve chair, to replace Chair Jerome Powell.

Several other Asian currencies also strengthened, with the Korean won climbing 1.3%, the Malaysian ringgit advancing to its strongest since June 2018, and the Singapore dollar surging to its strongest in more than a decade.

The U.S. Federal Reserve sets interest rates on Wednesday, with markets expecting no changes but for policymakers to flag further cuts with about 50 basis points of easing priced in for the year.

Precious metals also scaled new highs, with gold surpassing $5,000 per ounce to hit a record along with silver, platinum and palladium.

"There is potentially something larger at play here," said David Forrester, senior strategist at Credit Agricole in Singapore.

"The threat of intervention reflects a broader investor concern that Japanese and U.S. authorities would like a weaker USD," he said. "This combined with Trump's erratic policy making, including the threat of 100% tariffs on Canadian exports if it signs a trade deal with China, is weighing on the appeal of USD assets."

(Reporting by Gertrude Chavez in New York and Tom Westbrook in Singapore; Editing by Jamie Freed and Shri Navaratnam)