The dollar slumped to a four-month low on global foreign exchange markets Monday, linked in part to a surge in the yen that traders suggested could be a signal that authorities in Tokyo and Washington were preparing coordinated action to support the Japanese currency.
Reports said both the New York Federal Reserve, as well as Japan’s Ministry of Finance, made so-called rate check calls to foreign exchange trading desks, during which they asked for live bid/ask levels for the dollar-yen currency pair.
Rate check calls are typically seen as a precursor to direct market intervention, a move which was floated again on Sunday by Japanese Prime Minister Sanae Takaichi, who told Japanese TV her government would “take necessary steps against speculative or very abnormal market moves” to support the yen.
The Japanese yen has been falling hard over the past few weeks and threatened to test its all-time low of 161.95 against the greenback amid a cocktail of concerns tied to Takaichi’s expansionary fiscal policies and her snap election campaign promises.
The yen surged nearly 2.9% from Friday’s closing levels in early Monday trading to change hands at 153.66 against the U.S. dollar, the highest in two months.
“The prospect of bilateral Japan-U. S. intervention is understandably a more powerful one than mere passive intervention from Tokyo alone,” said ING’s global head of macro research, Chris Turner. He argued that a weakening yen, alongside a selloff in Japanese government bonds, also has been driving U.S. Treasury bond yields higher.
“If there is any financial instrument more important than the stock market to the White House right now, it is U.S. Treasuries,” he added. And the strong dollar, combined with a weak yen, was potentially unwinding the work of U.S. tariffs on Japan and giving Japanese manufacturers a competitive advantage.”
The dollar, meanwhile, is suffering from both a “Sell America” momentum tied to President Donald Trump’s domestic and foreign policies, the country’s weakening fiscal structures, and the prospect of a dovish Federal Reserve chair replacing current head Jerome Powell later in the spring.
The president also has threatened a 100% tariff on Canadian imports, which he made amid trade negotiations between Ottawa and Beijing, suggesting policy volatility will continue following last week’s detente with Europe.
And the odds of a government shutdown also have risen sharply following the weekend shooting of a man in Minnesota by U.S. Immigration and Customs Enforcement officers, the state’s second fatality in as many months, which has led to a standoff over Department of Homeland Security funding.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was last down 0.57% Monday at 97.04.
Precious metals prices, meanwhile, continued to soar, as investors search for fiat currency alternatives. Gold passed the $5,000 an ounce mark for the first time on record Monday, while silver jumped 6.1% to trade at $109.27 an ounce.
“While gold remains the ultimate hedge against inflation, fiscal debt concerns, and geopolitical risks, silver continues to be the main driver of the rally, fueled by FOMO, strong momentum, limited liquidity, and robust Chinese demand,” said Saxo Bank’s head of commodity strategy, Ole Hansen.