The Japanese yen rose against the dollar on Friday after Japan’s Finance Minister Satsuki Katayama said Tokyo would not rule out any options to counter yen weakness, including coordinated intervention with the United States.

The yen had earlier this week fallen to its lowest level in a year and a half. It was last up 0.3% at 158.13 per dollar, though it remains on course to record a third consecutive weekly loss against the US currency.

The dollar index, which measures the US currency against a basket of peer currencies, was heading for a third straight weekly gain, after positive US economic data pushed back expectations for interest rate cuts by the Federal Reserve.

Katayama said the joint statement signed with the United States last September “was extremely important and included language related to intervention.”

Japanese markets are in a wait-and-see mode ahead of a pivotal week in which Prime Minister Sanae Takaichi, known for her accommodative fiscal stance, is expected to dissolve parliament ahead of early elections, while the central bank meets to discuss monetary policy. Sources told Reuters that some policymakers at the Bank of Japan see room to raise interest rates sooner than markets currently expect, in order to counter yen weakness.

The Japanese currency has weakened this week amid expectations that Takaichi would have greater latitude to roll out additional stimulus measures, with early elections expected at the start of next month.

Shinichiro Kadota, Head of FX and Rates Strategy for Japan at Barclays in Tokyo, said: “Reports of the dissolution of the lower house are adding pressure to the yen, and we have extended our target for long positions in dollar/yen, but the risk of potential intervention could cap the upside.”

Barclays said in a note that Japan’s ruling Liberal Democratic Party could face a tough election as the opposition strengthens coordination, adding that monetary policy could shift not only depending on the election outcome, but also on developments in the foreign exchange market.

The dollar supported by data

The dollar index’s advance paused on Friday, with the currency slipping 0.07% to 99.28 points, though it remains on track for weekly gains of around 0.15%.

The dollar rose on Thursday after data showed US weekly jobless claims unexpectedly declined, a move seen as reflecting difficulties in adjusting the data for seasonal fluctuations.

Federal funds futures also pushed back expectations for the first rate cut to June, supported by improved employment data and as central bank policymakers voiced concerns over inflation.

Elsewhere, Philip Lane, Chief Economist at the European Central Bank, said the ECB would not discuss any change in interest rates in the near term if the economy stays on its current path, but warned that new shocks — such as a potential deviation by the Federal Reserve from its mandate — could disrupt expectations.

The ECB has kept interest rates unchanged since ending a rapid easing cycle in June, and signaled last month that it is in no hurry to adjust monetary policy again.

The euro was steady at $1.16120, on track to post a third consecutive weekly loss against the US dollar, after falling on Thursday to its lowest level versus the dollar since early December.

Gold prices fell in European markets on Friday, extending losses for a second consecutive day and pulling back from record highs, amid ongoing correction and profit-taking, alongside negative pressure from the rise of the US dollar against a basket of global currencies.

Despite this pullback, the precious metal is on track to post a second consecutive weekly gain, supported by safe-haven buying amid escalating global geopolitical tensions.

Price Overview

• Gold prices today: Gold prices fell by about 0.55% to $4,591.46, from the session opening level of $4,616.13, after recording a high of $4,621.08.

• At Thursday’s settlement, the precious metal lost 0.3%, due to correction and profit-taking, after hitting an all-time high the previous day at $4,643.02 per ounce.

The US dollar

The dollar index rose by 0.1% on Friday, maintaining gains for a second consecutive session and trading near a one-and-a-half-month high, reflecting continued strength in the US currency against a basket of global currencies.

This rise comes as investors focus on buying the US dollar as the best available investment, especially amid a series of strong US economic data releases that have reduced expectations for two US interest rate cuts this year.

Kyle Rodda, an analyst at Capital.com, said the US dollar appears stronger at the start of the year. He noted that weekly US jobless claims data, along with some manufacturing sector surveys, came in better than expected, reducing the likelihood of an imminent interest rate cut by the Federal Reserve.

US interest rates

• Donald Trump welcomed the inflation figures released this week and renewed his call for Federal Reserve Chair Jerome Powell to cut interest rates “significantly.”

• According to the CME FedWatch tool from the CME Group, pricing for the probability of keeping US interest rates unchanged at the January 2026 meeting currently stands at 95%, while pricing for a 25-basis-point rate cut remains at 5%.

• Investors are currently pricing in two US interest rate cuts over the coming year, while Federal Reserve projections point to a single 25-basis-point cut.

• To reprice these expectations, investors are closely monitoring upcoming US economic data releases, as well as comments from Federal Reserve officials.

Outlook for gold

Kyle Rodda of Capital.com said the decline in gold prices began mainly as expectations of US intervention in Iran’s social unrest faded, while incoming US data indicate no urgent need to cut interest rates.

Weekly performance

Over the course of this week’s trading, which officially ends at today’s settlement, gold prices are up by about 1.85%, on track to record a second consecutive weekly gain, supported by demand for the metal as a safe haven amid rising global geopolitical tensions.

SPDR fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose by about 0.57 metric tons on Thursday, bringing the total to 1,074.80 metric tons — the highest level since June 17, 2022.

The euro edged slightly lower in European markets on Friday against a basket of global currencies, extending its losses for a second consecutive day against the US dollar and heading toward a six-week low. The single currency is on track for a third straight weekly loss, after strong US labor market data supported buying of the American currency as the best available investment.

The European Central Bank’s chief economist warned of the risk of new shocks that could negatively affect economic forecasts and create financial difficulties that may influence the path of monetary policy in the euro area.

With inflationary pressures on ECB policymakers easing, expectations for at least one European interest rate cut this year have picked up.

Price Overview

• Euro exchange rate today: The euro fell against the dollar by about 0.1% to $1.1602, from the session opening level of $1.1608, after recording a high of $1.1614.

• The euro ended Thursday’s trading down 0.3% against the dollar, hitting a six-week low at $1.1593, following the release of strong US economic data.

Weekly performance

Over the course of this week’s trading, which officially ends at today’s settlement, the single European currency is down by about 0.3% against the US dollar, on track for a third consecutive weekly loss.

The US dollar

The dollar index rose by 0.1% on Friday, maintaining gains for a second straight session and trading near a one-and-a-half-month high, reflecting continued strength in the US currency against a basket of major and secondary currencies.

This rise comes as investors focus on buying the US dollar as the best available investment, especially amid a string of strong US economic data that have reduced expectations for two US interest rate cuts this year.

Kyle Rodda, an analyst at Capital.com, said the US dollar appears stronger at the start of the year. He noted that weekly US jobless claims data, along with some manufacturing sector surveys, came in better than expected, reducing the likelihood of an imminent interest rate cut by the Federal Reserve.

Chief economist

Philip Lane, Chief Economist at the European Central Bank, warned that any “potential deviation” by the US Federal Reserve from its core mandate could have a significant negative impact on global economic expectations.

Lane stressed that central bank independence is critically important, warning that new shocks stemming from political interference in US monetary policy could create uncertainty and unnecessary risk premiums in global markets, potentially forcing the ECB to reassess its future stance on interest rates.

European interest rates

• Data released last week showed a slowdown in headline inflation in Europe in December, pointing to easing inflationary pressures on the European Central Bank.

• Following those data, money market pricing for the probability of the ECB cutting European interest rates by about 25 basis points in February rose from 10% to 25%.

• Traders revised their expectations from the ECB keeping interest rates unchanged throughout this year to at least one rate cut of around 25 basis points.

• To reprice these expectations, investors are awaiting further euro area economic data on inflation, unemployment, and wages.

The Japanese yen rose in Asian markets on Friday against a basket of major and secondary currencies, moving away from an 18-month low against the US dollar, as bargain buying accelerated and after Japan’s finance minister hinted at the possibility of joint intervention with the United States to support the struggling currency.

According to Reuters, many officials at the Bank of Japan see scope for another interest rate hike, with some not ruling out an increase as early as April, as the yen’s weakness threatens to intensify rising inflationary pressures.

Despite the current rebound, the Japanese currency may record a third consecutive weekly loss, amid concerns linked to political developments in Japan, where Prime Minister Sanae Takaichi is likely to dissolve parliament and call an early general election in February.

Price Overview

• Japanese yen exchange rate today: The dollar fell against the yen by more than 0.4% to ¥157.97, from the opening level of ¥158.63, after recording a high of ¥158.70.

• The yen ended Thursday’s trading down 0.15% against the dollar, resuming losses that had paused the previous day during a recovery from an 18-month low of ¥159.45 per dollar.

Joint intervention to support the yen

Japan’s Finance Minister Satsuki Katayama said on Friday that the government “will not rule out any options” to address excessive and unjustified movements in the foreign exchange market, in a clear signal of the possibility of direct intervention to support the yen.

Katayama said the current weakness of the yen does not reflect Japan’s economic fundamentals and is hurting household purchasing power. She added that Japan remains in close contact with its international partners, especially the United States, to ensure that any action in currency markets is consistent with international understandings on exchange rate stability.

Speaking at her regular press conference, Katayama said that the joint statement signed with the United States last September “was extremely important” and included provisions related to foreign exchange intervention.

Felix Ryan, an FX strategist at ANZ, said that approaching the intervention stage is often accompanied by statements from Japan’s Ministry of Finance or government officials about yen levels, or by inquiries made to counterparties.

Ryan added that the significance of such remarks depends mainly on the dollar-yen level and the speed of its movements over a 24-hour period.

Japanese interest rates

• Four sources familiar with the matter told Reuters that some monetary policy officials at the Bank of Japan see the possibility of raising interest rates sooner than markets currently expect.

• These sources point to a potential rate hike decision at the April meeting, amid concerns that the continued decline of the yen could worsen rising inflationary pressures.

• The sources, who asked not to be identified because they are not authorized to speak to the media, said the Bank of Japan does not rule out early action if sufficient evidence emerges that the economy can achieve the 2% inflation target sustainably.

• Economists told Reuters that the Bank of Japan would most likely prefer to wait until July before raising the key interest rate again, with more than 75% expecting it to rise to 1% or more by September.

• Pricing for the probability of the Japanese central bank raising interest rates by a quarter percentage point at the January meeting remains steady below 10%.

• The Bank of Japan meets on January 22–23 to review economic developments and determine appropriate monetary tools for this sensitive phase facing the world’s fourth-largest economy.

Weekly performance

Over the course of this week’s trading, which officially ends with today’s settlement, the Japanese yen is down about 0.25% against the US dollar, on track for a third consecutive weekly loss.

Early elections

Hirofumi Yoshimura, leader of the Japan Innovation Party and a partner in the ruling coalition, said on Sunday that Takaichi may call early general elections.

Japan’s public broadcaster NHK reported on Monday that Prime Minister Sanae Takaichi is seriously considering dissolving the House of Representatives and calling an early general election in February.

Kyodo News said on Tuesday that Takaichi had informed ruling party leaders of her intention to dissolve parliament at the start of its regular session on January 23.

The Yomiuri Shimbun reported on Wednesday that Takaichi is considering holding an early lower house election on February 8.

The move to dissolve the current parliament comes as Takaichi seeks to strengthen her popular mandate and secure a comfortable parliamentary majority to ensure passage of the 2026 fiscal year budget and proposed economic reforms, particularly as the current government faces challenges in passing legislation in a divided parliament.

Views and analysis

• News of early elections has created political uncertainty among investors, immediately reflected in yen movements in currency markets, amid anticipation of how the elections could affect future Bank of Japan rate hike decisions.

• Eric Theoret, a currency strategist at Scotiabank in Toronto, said that early elections would give Takaichi an opportunity to capitalize on the strong popularity she has enjoyed since taking office last October.

• Theoret added that the implications for the yen are highly negative, as Takaichi is seen as an advocate of loose monetary and fiscal policy, and therefore comfortable with more flexible fiscal policy and larger deficits.

• Tony Sycamore, a market analyst at IG, said the looming elections are fueling yen weakness and weighing on Japanese government bonds due to “concerns about excessive fiscal expansion.”

• Sycamore added that the recent selling of the yen toward the key 160 level brings Japan’s Ministry of Finance noticeably closer to actual intervention.