With the dollar retreating before a set of key economic data, the Japanese yen has rebounded after Tokyo issued a strong warning that it would intervene in the currency markets.
The dollar fell in light trading due to the holidays, with full focus on the GDP readings and the personal consumption expenditures index scheduled to be released later in the day. Both readings are likely to impact U.S. interest rate expectations through 2026.
Asian trading volumes were also affected by year-end holidays, with most regional currencies stabilizing on annual gains against the dollar. The Japanese yen remained largely stable against the dollar in 2025 after experiencing sharp volatility during the year.
The Japanese yen sharply rises after intervention threats.
The USD/JPY pair fell by 0.5% on Tuesday, pulling back from its highest levels this year after a warning from Finance Minister Shunichi Suzuki.
Suzuki stated that recent moves in the yen were driven by speculation and do not reflect market fundamentals, warning that the government would take "appropriate measures against excessive movements."
Suzuki's warning has been the most decisive so far from Tokyo regarding bets against the yen, triggering a sharp recovery in the currency due to fears of dollar selling driven by the government.
Tokyo previously intervened with the USDJPY pair in the range of 155 yen to 160 yen.
The dollar is retreating as market waits for GDP data and PCE index.
The dollar index and dollar futures contracts fell by about 0.2% in Asian trading, following a moderate session on Monday.
The dollar was affected by caution ahead of key readings for the U.S. economy, which were delayed due to the government shutdown in October and early November.
GDP data for the third quarter is scheduled to be released later in the day, and it is expected to show a slowdown in economic growth compared to the previous quarter. The Personal Consumption Expenditures Price Index data - the inflation measure preferred by the Federal Reserve - is also scheduled for release later on Tuesday, and it is expected to show persistent inflation.
However, analysts warned that economic data for October and November may have been affected by the shutdown, and December readings will have a greater impact on interest rates.
Markets are betting heavily on the Federal Reserve keeping interest rates unchanged in January, although interest rates are still expected to decline in the long term.
Most Asian currencies rose as the dollar weakened. The USD/CNY pair fell by 0.1%, while the AUD/USD pair rose by 0.2%.
The USD/TWD pair fell by 0.1%, while the USD/SGD pair decreased by 0.2%.
The USD/INR pair edged up slightly but remained below the benchmark levels that exceeded 90 rupees recorded earlier in December.