Yen Struggles Amid Dollar Surge: A Currency Clash

The Japanese yen is trading at near five-month lows against a strengthening U.S. dollar, supported by rising U.S. yields and year-end liquidity constraints. The situation has prompted concerns over potential Japanese intervention to stabilize the currency. Meanwhile, the dollar continues its upward trajectory, influenced by upcoming U.S. policies.

The Japanese yen reached near five-month lows on Monday, pressured by a robust U.S. dollar bolstered by climbing U.S. yields. Thin year-end liquidity has restricted most currencies and kept the yen at 157.71, with intervention risks preventing a 160-level test last seen in July.

The dollar index stood unchanged at 107.98, while the euro remained at $1.0429, close to its recent lowest levels amid holiday trading. The euro is anticipated to drop approximately 5.5% against the dollar this year. U.S. Treasury yield increases have aided the dollar, with the benchmark 10-year note achieving a seven-month high last week.

Despite widespread forecasts of a weaker dollar in 2024, it looks set to close the year stronger against major currencies, supported by President-elect Donald Trump's potential policy impacts. The yen has lost 10.6% this year, sparking speculation of Japanese intervention if the currency continues to weaken.

(With inputs from agencies.)