FOREX-Yen gains from intervention risk keeps dollar in check

By Rae Wee

SINGAPORE, Jan 27 (Reuters) - The U.S. dollar struggled to rebound on Tuesday after steep loss against the yen dragged it broadly lower, while traders remained on alert to potential coordinated currency intervention by authorities in the U.S. and Japan.

Much of the focus in the foreign exchange market recently has been on the yen, which has rallied as much as 3% over the past two sessions on talk of the U.S. and Japan conducting rate checks - often seen as a precursor to intervention.

That has helped the yen steady around 153 to 154 per dollar, though it gave up some gains on Tuesday and eased 0.26% to 154.59 JPY=. Still, the rate remains some distance away from Friday's low of 159.23.

"The fact that it's coming from the U.S. suggests, or is giving risks to the market, that there may be multiple parties perhaps prepared to intervene, which is different compared to what we've seen in the past," said Parisha Saimbi, EM Asia FX and local markets strategist at BNP Paribas.

"And that, I think, is part of the reason why it wasn't just the move that we saw in dollar/yen, but we saw actually a broad-based dollar move."

While there has been no confirmation of rate checks from officials in Japan or the U.S., a person familiar with the matter told Reuters that the New York Federal Reserve had checked dollar/yen rates with dealers on Friday.

Top Japanese authorities meanwhile said on Monday they have been in close coordination with the U.S. on foreign exchange.

The possibility of intervention has left investors hesitant to push the yen lower, even amid concern about Japan's fiscal health.

Analysts also said there is a high bar for coordinated intervention, and that it may not come as soon as markets expect.

Bank of Japan money market data indicated that a spike in the yen against the dollar on Friday was not likely due to Japanese intervention.

"If this is simply just a rate check and not actual intervention, then we do see risks that dollar/yen could drift back higher again," said Saimbi.

"But I think the key reason for why we haven't perhaps seen a quick reversal is because of this concern that it may be multilateral parties that are getting involved, rather than just from the Japanese side."

DOLLAR UNDER WATER

The recent sharp rise in the yen has meanwhile taken a toll on the dollar, which was further pressured by problems of its own, including a looming U.S. government shutdown and seemingly erratic policymaking from President Donald Trump.

The greenback attempted to claw back its losses on Tuesday, though movement was marginal.

The euro EUR= slipped 0.04% to $1.1876, not far from a four-month peak of $1.19075 on Monday. Sterling GBP= dipped 0.02% to $1.3675, remaining perched near the previous session's four-month top of $1.37125.

The Australian dollar AUD= eased 0.07% to $0.6911 but held near Monday's 16-month high of $0.6941, whereas the New Zealand dollar NZD= fell 0.15% to $0.5966, having gained nearly 0.5% in the previous session.

The U.S. dollar has come under fire in the turbulent weeks of 2026 as a range of factors prompts a rethink of investors' optimistic assumptions for a period of greenback stability.

Against a basket of currencies, the dollar =USD has fallen more than 1% for the year so far. It was last at 97.11, having hit a four-month low of 96.808 on Monday.

The U.S. Federal Reserve begins a two-day policy meeting on Tuesday - one set to be overshadowed by the Trump administration's criminal investigation of Chair Jerome Powell, an evolving effort to fire Fed Governor Lisa Cook, and the coming nomination of Powell's successor.

"I think markets will probably be focused on questions about the Fed's independence rather than the rate outlook," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

"If Powell does choose to resign as a governor after his Chair term expires in May, that could actually add to the perception that he is capitulating to political pressure, and that could add to concerns around Fed independence being compromised... (That) it is a downside risk to the dollar."