Yen Slides to Weakest Level Since July 2024 as Dollar Remains Under Pressure

The Japanese yen fell to its lowest level in more than a year on Tuesday, while the U.S. dollar retained most of its recent losses as investors remained uneasy about the independence of the Federal Reserve following the Trump administration’s decision to open a criminal investigation into Chair Jerome Powell.

The yen was the biggest mover during Asian trading hours, sliding to its weakest point since July 2024 at 158.925 per dollar.

The decline followed reports that Japanese Prime Minister Sanae Takaichi had informed a senior ruling party official of her intention to dissolve the lower house of parliament at the start of its regular session, which is scheduled to begin on January 23.

The Japanese currency had already been under pressure earlier in the week after Hirofumi Yoshimura, leader of the Japan Innovation Party, said on Sunday that Takaichi could call an early general election.

“Markets will likely price in a scenario where Takaichi’s coalition secures more seats in the powerful lower house, which would strengthen her ability to further loosen fiscal policy and potentially monetary policy as well,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“That is the main reason the yen is being sold off at the moment, driven by these political speculations,” she added.

The yen also fell to record lows against the euro and the Swiss franc, while hitting its weakest level versus the British pound since August 2008.

Investors Rattled by Powell Investigation

Investors continued to assess the implications of the Trump administration’s investigation into Powell, a move that drew criticism from former Federal Reserve leaders and marked a significant escalation in the president’s efforts to pressure the central bank into accelerating interest rate cuts.

Market reaction to the development included selling of the U.S. dollar and U.S. Treasury bonds, while concerns also led some investors to seek safety in gold. However, the selloff was far more restrained than the sharp market reaction that followed the announcement of sweeping U.S. tariffs by President Donald Trump last April.

“The episode was relatively mild, with losses in both the dollar and U.S. Treasuries limited, as markets likely believe this is a threat that will eventually fade,” said Vishnu Varathan, head of macro research for Asia excluding Japan at Mizuho.

The euro was steady at $1.1663 after rising as much as 0.5% in the previous session. Sterling edged higher to $1.3474, extending Monday’s gain of 0.47%.

The Swiss franc strengthened slightly to 0.7972 per dollar, while the dollar index was last up less than 0.1% at 98.95, after recording its worst daily performance in three weeks during the prior session.

“The outlook for the dollar is somewhat mixed,” said Sim Moh Siong, an FX strategist at OCBC.

“In terms of economic data, the Federal Reserve should be more reluctant to cut rates given the resilience of the economy,” he said. “However, there is also uncertainty about what the Fed will ultimately do.”

“If political pressure on the Fed continues to intensify, the central bank may turn more dovish and potentially cut rates far more than what the economic fundamentals would justify,” he added.

While the administration’s latest move has not significantly changed market expectations for two Federal Reserve rate cuts later this year, it has raised fresh concerns about the central bank’s autonomy, which is widely seen as a cornerstone of U.S. economic policy and the country’s financial system.

Fitch Ratings said on Monday that it considers the Federal Reserve’s independence a key factor supporting the United States’ AA+ sovereign credit rating.

U.S. Treasury yields edged slightly lower on Tuesday following gains in the previous session. The benchmark 10-year yield was last at 4.1811%, while the two-year yield hovered near a three-week high at 3.5385%.

In other currency markets, the Australian dollar was little changed at $0.6710, while the New Zealand dollar rose 0.1% to $0.5778.

Separately, a private survey released on Tuesday showed that Australian consumer sentiment declined in January, as households grappled with renewed concerns over interest rates and an uncertain economic outlook.

Meanwhile, a private research group reported that business confidence in New Zealand improved in the fourth quarter and has reached its highest level since March 2014.