The yen appreciated against the U.S. dollar, reflecting a technical recovery following warnings from Japanese officials about “one-sided and sharp” currency fluctuations. This statement indicated a preparedness to implement necessary measures, which analysts interpreted as a clear indication of potential intervention. The Japanese currency received a boost from a generally weaker dollar, which has faced pressure following the Federal Reserve’s 25 basis-point rate cut during its policy meeting on December 10, according to analysts. U.S. rate futures indicate expectations for two rate cuts in the upcoming year. The yen has depreciated in recent sessions against the dollar, even after the Bank of Japan increased interest rates to 0.75% from 0.5% last Friday, marking a rise in borrowing costs to a level not seen in three decades. It is set to conclude December on a downward trend, marking the fourth consecutive month of decline.

“Overall, the Japanese yen has declined for factors that extend beyond the interest-rate hike from the BOJ, which was largely anticipated. One thing is that the rate down the line may not be moved unless there is evidence of improved fundamentals,” said Juan Perez. “There is limited confidence in the yen…and we must now monitor the potential…for an FX intervention.” However, when that has occurred in recent instances, it yielded minimal results while incurring significant costs,” he added. Atsushi Mimura, Japan’s leading currency diplomat, informed reporters on Monday that the recent foreign exchange fluctuations were both one-sided and abrupt, emphasizing that the government will implement suitable measures in response to excessive movements. Chief Cabinet Secretary Minoru Kihara expressed concerns regarding the ongoing depreciation of the yen, emphasizing the necessity for “the currencies to move in a stable manner, reflecting fundamentals.”

Marc Chandler stated that the verbal intervention “makes sense after the rate hike,” highlighting that any potential action from Japan to strengthen the yen was improbable until the BOJ increased rates. “With the BOJ’s recent rate hike, they can assert that they have tightened monetary policy and that the yen is diverging from its fundamental values. And so you’ve got a bit of short-covering on the yen as a result,” he added. During afternoon trading, the dollar experienced a decline of 0.5% against the yen, settling at 156.94 yen, with a low of 156.71 observed. It was poised for its most significant one-day drop since late November. The dollar index experienced a decline of 0.4%, settling at 98.3, primarily driven by losses against both the euro and the yen. The index appeared set to record its largest annual decline in eight years. The euro appreciated by 0.4% against the dollar, reaching $1.1753, following a period of four consecutive days of decline last week. The European Central Bank maintained euro zone rates at their current levels and has effectively ruled out any imminent rate cuts. The decision had been anticipated by many, and ECB President Christine Lagarde has repeatedly stated that the central bank is “in a good place” regarding monetary policy. Sterling experienced an increase on Monday against the dollar, reaching $1.3458, which represents a 0.6% rise. This movement follows a relatively stable performance at the end of the previous week, subsequent to the Bank of England’s decision to cut rates.

The BoE indicated that further rate cuts may be limited, considering that inflation continues to exceed the central bank’s target. The pound has appreciated by 1.1% this month, resulting in a year-to-date increase of approximately 7%. The euro previously reached an unprecedented level against the yen at 184.92, while the Swiss franc ascended to a historic high of 198.4 yen. Nonetheless, both currencies experienced a slight decline, with the euro recently down 0.1% for the day at 184.49 yen, whereas the Swiss franc was last traded at 198.32 yen, maintaining an increase of 0.6%. Recently, one of the factors contributing to the depreciation of the yen has been Prime Minister Sanae Takaichi’s spending strategy aimed at stimulating growth, along with the potential repercussions on Japan’s already pressured financial situation. BOJ Governor Kazuo Ueda is scheduled to address Japan’s Keidanren business lobby on December 25, potentially providing markets with another chance to analyze any policy insights. According to government sources, total spending in Japan’s draft budget for fiscal 2026 is likely to surpass 120 trillion yen ($775 billion), setting a new record.