Why A 'Suspected' Yen Intervention Just Sent The Dollar Sliding

The U.S. dollar is once again under pressure, on track for its worst two-day decline since April 2025, as mounting speculation over currency intervention to support the Japanese yen rippled across global markets.

The U.S. dollar index (DXY) — widely tracked through the Invesco DB US Dollar Index Bullish Fund (NYSE:UUP) — fell 0.6% on Monday, extending Friday's 0.9% drop.

At the center of the turbulence is the yen.

The Japanese currency, tracked by the Invesco CurrencyShares Japanese Yen Trust (NYSE:FXY), surged more than 3% over the past two trading sessions, marking one of its strongest two-day advances in years.

Suspected Intervention Triggers FX Rout

"Suspected intervention to sell USD/JPY, plus U.S. authorities reportedly getting involved, has prompted a near 3.5% drop since Friday morning," ING analyst Chris Turner wrote on Monday.

According to market chatter, Japanese authorities may have stepped into currency markets on Friday after USD/JPY pushed above 159 following the Bank of Japan's policy meeting. But it wasn't Tokyo's actions alone that rattled investors.

"The big kicker," Turner indicated, was widespread discussion that at the London close on Friday, the Federal Reserve Bank of New York began contacting banks to ask about their USD/JPY position sizes.

Such inquiries are often interpreted as a "rate check" — a signal that a central bank may be preparing markets for direct intervention.

Crucially, the reports suggested the Fed did not clearly communicate that it was acting solely on behalf of Japanese authorities.

"That the Fed was allegedly doing this and not making clear that this activity was purely on behalf of Japanese authorities… has led to understandable suggestions that the U.S. might be on the verge of joint intervention with Japan," Turner wrote.

"Over the weekend, speculation intensified that Japanese officials could be preparing to step into the market, possibly in coordination with the U.S.," BBVA analyst Alejandro Cuadrado wrote.

What a Weaker Dollar Means For Markets

According to 22V Research analyst Dennis DeBusschere, a sustained decline in the dollar — particularly one occurring alongside anchored inflation expectations — carries important implications for asset prices.

"The practical implication of a sharp USD decline, if it happens with anchored inflation expectations, as is the case today, is 1) large caps stocks tend to outperform as the USD moves lower," DeBusschere said, noting that larger-cap companies generate a higher share of foreign revenues.

He added that the S&P 100 and "Magnificent Seven" stocks significantly outperformed last Friday.

The Roundhill Magnificent Seven ETF (NYSE:MAGS) extended its rally for a fourth consecutive session, climbing about 5% over that stretch.

Second, earnings expectations may rise.

"We put together a simple model that suggests a 1% decrease in the trade-weighted Dollar adds roughly 27bp to EPS growth," DeBusschere said. "The DXY is -2.5% since Jan 16th."

Third, a weaker dollar eases financial conditions.

"Gold seems to benefit from this in particular since COVID," he said, noting that the Fed's financial conditions index moved to its easiest level on Friday — a backdrop that typically favors risk assets over defensives and low-volatility strategies.

Despite the near-term pressure, DeBusschere cautioned against extrapolating the dollar's decline too aggressively.

The DXY is already down roughly 11% from last February, even as the U.S. current account deficit has narrowed, the trade deficit has come in lower than expected, and expectations for Federal Reserve rate cuts have been reduced.

"The above should lead to less downside pressure on the USD," he said.

"We would not be long the USD, just noting that pressing the short side, medium term — so behind the yen intervention headlines — seems tougher.”

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