On Monday, the US dollar fell to a four-month low, while gold surpassed the $5,000 per troy ounce mark for the first time. Market speculation that the US and Japan might take joint action to support the yen further pressured the dollar.

The yen climbed 1.3% against the dollar to just under ¥154 per dollar, extending gains from a volatile session on Friday. That session saw US authorities conduct "rate checks" with market participants, a move often seen as a precursor to foreign exchange market intervention.

The dollar index, which measures the US currency against a basket of major peers, fell 0.6% on Monday, continuing a decline triggered by the Greenland crisis last week. That crisis led to the dollar's worst weekly performance since May.

The yen's sharp appreciation occurred against a backdrop of trader speculation that the US and Japan might be close to their first coordinated currency market intervention since the G7's joint action to weaken the yen following the 2011 earthquake.

Analysts at Mitsubishi UFJ Financial Group stated that the speculation surrounding the yen "intensified dollar selling," noting that coordinated intervention would "send a strong signal that the Trump administration desires a weaker dollar."

Driven by the weaker dollar and persistent concerns about instability in US policymaking, investors flocked to precious metals, pushing gold prices up over 2% to a new record high above $5,100 per troy ounce.

"We've broken through another barrier, just much faster than I anticipated," said Michael Haigh, an analyst at Société Générale.

He added, "Investors are now numb to gold's price level because they expect this rally to continue." He pointed to elevated global "uncertainty levels," citing recent events in Venezuela, Greenland, and Iran as factors driving investors towards traditional safe-haven assets like gold.

The yen's rebound comes ahead of a snap election on February 8th, amid growing concerns among officials and investors about simultaneous selling pressure on the yen and the Japanese government bond market.

Earlier this month, the yen hit an 18-month low as traders reacted to the new stimulus plan introduced by Japan's new Prime Minister, Sanae Takaichi. Investors worry that authorities face a dilemma: either support the currency by raising interest rates or maintain low borrowing costs to curb a sell-off in the Japanese bond market.

Yujiro Goto, chief foreign exchange strategist at Nomura, suggested that while no data confirms the market rumors, Japanese authorities likely intervened directly in the market on Monday, given that the exchange rate movement exceeded what would be expected from mere verbal intervention.

Goto pointed out that such a significant drop in the dollar would typically trigger "buying on the dip" by investors. "Without intervention, the dollar might have rebounded this morning, so I wouldn't be surprised if Japan acted," he said.

Traders are bracing for further currency volatility, with the CME Group's dollar-yen implied volatility index rising to its highest level since last July.

The last time Japanese authorities directly intervened in the forex market was in 2024, when they stepped in four times, buying nearly $100 billion worth of yen to support the currency after it weakened to around ¥160 per dollar.

The yen's gains accelerated further after Japan's top currency official, Atsushi Mimura, told reporters on Monday, "We will continue to respond appropriately to exchange rate movements and cooperate closely with US authorities when necessary."

This followed Prime Minister Sanae Takaichi's statement on Sunday that her government would take "all necessary measures to address speculative and extremely abnormal currency fluctuations."

Traders said the market reaction stemmed from a perception that the US is apparently as concerned as Japan about the yen's prolonged weakness, a perception that has reversed the yen's downward trend of over three months.

"Market perception is key," said Benjamin Shatil, senior economist at J.P. Morgan's Tokyo branch. "If the market perceives Japan is acting in coordination with the US, the effectiveness of verbal intervention increases dramatically. That might already be enough to move the market."

Japanese stocks fell sharply on Monday, dragged down by the stronger yen and concerns about its potential impact on corporate profits. A stronger yen reduces the foreign exchange earnings of Japanese exporters. The Nikkei 225 index fell 1.8% on the day.

"Today's trading is a knee-jerk reaction. This is always the case whenever there is a significant move in the yen," said Shrikant Kale, a strategist at Jefferies. "The most frequent request I've received in the last 24 hours is 'Please tell me which companies are positively correlated and which are negatively correlated with the yen exchange rate'."