The Bloomberg Dollar Spot Index fell as much as 0.5% to its lowest level since September after a rate check Friday by the Federal Reserve Bank of New York fueled speculation that the U.S. could help Japan in efforts to weaken the dollar against the yen. The Japanese currency rose as much as 1.2%. Stock index futures pointed to modest losses for the US and Europe.
Meanwhile, gold continued a breakneck rally, fueled by President Donald Trump’s overhaul of international relations and investors’ flight from government bonds and currencies. Silver rose by more than 6% to a record high.
The volatility in currency markets comes as Japan’s currency chief Atsushi Mimura said authorities in Tokyo would respond in close coordination with their counterparts in Washington. Earlier, Japanese Prime Minister Sanae Takaichi warned markets that the government is ready to take action.
“The bigger signal is policy coordination,” said Daniel Baeza, senior vice president at Frontclear. “If markets interpret coordination as a willingness to more easily tolerate global dollar conditions, especially when combined with a dovish Fed response, it could reinforce the dollar’s downtrend in the near term.”
Traders interpreted the New York Fed’s actions as an indication that the central bank was preparing to help Japanese officials intervene directly in the currency market to support the yen. The dollar fell the most since May last week due to unpredictable US policymaking, tariff tensions between the US and Europe and attacks on the independence of the Federal Reserve.
Concerns about another US government shutdown also increased over the weekend, with Trump threatening 100% tariffs on imports from Canada.
In other corners of the market, U.S. Treasuries headed higher amid tariff threats and rising geopolitical tensions. Stock prices fell in Japan, South Korea and Hong Kong.
Asian currencies benefited from the weak dollar, with the Malaysian ringgit rising to its strongest level since 2018 and the South Korean won to its highest level in about three weeks. The Singapore currency rose to its strongest level since 2014.
Attention is once again shifting to the dollar and Japan after a rise in the Asian country’s bond yields last week unsettled global fixed income markets. The coming days are critical for investors as the Fed prepares to make its policy decision and megacaps including Microsoft Corp. and Tesla Inc., reporting earnings.
For many dollar watchers, signs of US support to boost the yen reopen the debate over possible coordinated currency intervention to send the dollar lower against the currencies of its major trading partners.
It is thought that such a pact would help US exporters compete with rivals such as China and Japan.
“If the New York Fed chooses to get involved, it would strengthen the yen’s rally,” said Gareth Berry, strategist at Macquarie Bank Ltd. in Singapore. “And not just for symbolic reasons. Japan has a lot of USD to sell, but the NY Fed has an infinite supply. It would also be interpreted as a sign that Trump wants a weaker dollar more generally.”
The growing risk of another partial government shutdown will reinforce self-feeding dynamics, increasing diversification away from the dollar and US assets. The US dollar sell-off will accelerate as foreign investors increase their currency coverage ratios and as the yen’s depreciating trend has been halted by action by officials.
Published on January 26, 2026
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