Dollar Holds Steady as Markets Assess US-Japan Yen Intervention, Easing Oil Fears, and Fed Uncertainty

The U.S. dollar held steady Monday as traders weighed confirmed U.S.-Japan yen intervention, easing Middle East tensions, and lingering uncertainty from last week's Fed decision.

→ Dollar Index (DXY): flat at 99.90, after falling 1.5% last week

→ USD/JPY: down 0.3% to 157.18, having earlier touched 155.23

→ EUR/USD: down 0.2% to $1.1508

What distinguishes this intervention: This marks the first joint U.S.-Japan yen-buying operation in decades, triggered after the currency plunged past 162 per dollar — a 40-year low — in late July. The yen still posted a 1.6% monthly gain in July, its best since October, as intervention combined with hawkish BOJ signals to trigger a heavy unwind of short positions.

Treasury Secretary Bessent said Washington "strongly supports" Japan's efforts to correct the yen's undervaluation and warned the Treasury "would not hesitate" to join further joint action. Officials said the Federal Reserve's Foreign and International Monetary Authorities (FIMA) Repo Facility could be used instead of outright dollar sales in connection with the operation.

A key technical level in focus: Bank of America strategists flagged 155 on USD/JPY as a potential "inflection point." In prior 2026 intervention episodes, the pair found a floor near 155, reinforcing market skepticism that official defense was effective. A decisive break below 155, BofA said, could shift the market from dip-buying toward selling into rebounds, amplified by corporate dollar-hedging flows.

"With the U.S. participating, the ultimate constraint associated with unilateral reserve depletion has effectively been removed, making it significantly harder for speculative investors to challenge the authorities," said BofA's Shusuke Yamada.

BOJ policy remains another focus for markets: The Bank of Japan held rates steady at 1.0% on Friday as expected, but Governor Kazuo Ueda maintained a hawkish tone, flagging inflation risk from high energy import costs. BofA said the joint intervention could increase the likelihood of an earlier rate hike, potentially bringing expectations forward from October to September.

Markets also reacted to Trump's announcement that he called off a planned Iran strike in favor of talks on the Strait of Hormuz, sending crude down more than 4% and easing near-term inflation concerns.

Market focus: Investors are closely watching the 155 level on USD/JPY, which several analysts view as an important technical area. Market participants will also be monitoring this week's U.S. labor data, including Friday's nonfarm payrolls, for additional signals on the Federal Reserve's policy outlook.

Sources: Reuters/Investing.com, Bank of America Global Research, U.S. Treasury, Bank of Japan