The Japanese yen strengthened on Tuesday amid broad U.S. dollar weakness, following the most serious warning yet from Tokyo authorities signaling readiness to intervene in currency markets. The move came as the yen hovered near recent lows against major currencies, keeping yen bears cautious despite expectations that near-term weakness may continue.

Yen Gains on Intervention Signals

The yen rose 0.7% to 155.9 per U.S. dollar, retracing most of the losses sustained since Friday after the Bank of Japan’s (BOJ) well-telegraphed rate hike.

• Against the euro, Australian dollar, and British pound, the yen appreciated 0.5%, though it remained close to recent lows.
• Japanese Finance Minister Satsuki Katayama emphasized that Japan has a free hand in addressing excessive moves in the yen, the strongest hint yet of potential market intervention.

Matt Simpson, Senior Market Analyst at StoneX, noted:

“If Japanese authorities intervene, the low-liquidity period between Christmas and New Year could amplify the effect of their actions.”

Japan previously intervened in 2022 and 2024 to support the yen, highlighting a history of proactive measures when the currency faced sharp declines.

Dollar Weakness Supports Yen

The yen’s gains came amid continued U.S. dollar weakness, driven by the Federal Reserve’s recent rate cuts and expectations of two further cuts in 2026.

Charu Chanana, Chief Investment Strategist at Saxo, said:

“A slow BOJ hiking cycle combined with potential Fed easing in 2026 points to less one-way yen weakness, increasing the likelihood of range trading with intermittent yen strength when U.S. yields fall or risk sentiment shifts.”

The dollar index, measuring the greenback against six major currencies, slid 0.3% to 97.96, extending monthly losses to 1.6% and annual losses to 9.7%, its largest decline since 2017.

Focus on U.S. GDP and Global Currency Trends

Investor attention is on upcoming U.S. GDP data, delayed by a 43-day government shutdown. Economists expect 3.3% annualized growth in the third quarter, down from 3.8% in Q2, reflecting a K-shaped recovery pattern where higher-income households outperform lower-income groups.

Other major currency movements included:

• Australian dollar: +0.5% to $0.6691
• New Zealand dollar: +0.65% to $0.583
• Swiss franc: +0.5% to a six-week high of 0.788 per USD

Outlook for the Yen

While intervention threats provide temporary support, analysts caution that structural yen weakness could persist due to a slow BOJ tightening cycle and continued divergence with U.S. monetary policy. Market participants are closely monitoring Shunto wage negotiations and potential shifts in U.S. interest rates as key catalysts for the yen’s trajectory in 2026.