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[MARKET ANALYSIS] JPY surges on double intervention risks, in turn weighing on USD, whilst AUD is underpinned by gold

The JPY's surge is attributed to heightened intervention risks from the Japanese government amid currency weakness and rising bond yields, which also negatively impacts the USD.

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[MARKET ANALYSIS] JPY surges on double intervention risks, in turn weighing on USD, whilst AUD is underpinned by gold

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  • JPY is the standout gainer, bolstered by double intervention risk after Japanese PM Takaichi warned that the government is ready to take action against speculative moves amid a weakening currency and surge in bond yields, while it was reported on Friday that the New York Fed had conducted rate checks on USD/JPY. Analysts at ING succinctly highlight two reasons for Washington's involvement: "a) the weak yen was adding to last week's JGB sell-off and indirectly driving US Treasury yields higher. If there is any financial instrument more important than the stock market to the White House right now, it is US Treasuries. And b) the strong USD/JPY was potentially unwinding the work of US tariffs on Japan and giving Japanese manufacturers a competitive advantage." USD/JPY slumped from Friday's 155.74 close to a Monday trough at 153.40, slightly under the 100 DMA (153.54).
  • DXY gapped lower at the open from Friday's 97.456 close, with the index off worst and best levels at the time of writing, towards the middle of a 96.949-97.333 band. The index remains suppressed by the aforementioned JPY strength, alongside risks of a US government shutdown also increasing after Democrats said they will not support a funding package without changes to homeland security provisions; funding under the current continuing resolution is set to expire on 30th January, and if Congress doesn’t pass new appropriations by then, a partial or full shutdown could begin. Heading into month-end, the Barclays month​-​end rebalancing model indicates no strong USD directional bias vs most majors, with a weak USD buying signal vs the EUR.
  • EUR benefits from the USD weakness but trades off best levels after hitting resistance at 1.1898 (vs 1.1837 low) shortly after the resumption of trade. Little action was seen on the sub-par German Ifo report, and with the EZ docket also light ahead.
  • CHF mildly gains due to its haven status amid the looming US government shutdown, alongside President Trump's 100% tariff threat on Canada if it makes a trade deal with China. On that note, USD/CAD trades on a softer footing amidst the aforementioned USD weakness, with the pair also dipping under the psychological 1.3700 mark to a 1.3675 low at the time of writing.
  • Antipodeans trade on a firmer footing with AUD underpinned as spot gold briefly topped USD 5,100/oz earlier in the session. AUD reached a high of 0.6934 from a 0.6896 close on Friday.
Context

This dynamic, further complicated by potential U.S. government shutdown risks, creates a complex environment for traders, as USD and JPY movements influence broader forex markets, potentially altering strategies across major pairs, particularly in light of fiscal uncertainties.

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