The Japanese yen pared some of its gains against the dollar after a sharp surge earlier on Monday, which further fueled ongoing speculation that the Japanese government may have intervened to support the declining currency.

By 04:32 ET (08:32 GMT), the yen was up 0.1% against the dollar at 156.92, retreating slightly from a peak of 155.69. Most of these gains occurred during a brief window around midday Singapore time (04:00 GMT). Market holidays in Japan and China contributed to lower trading volumes.

Last week, the yen jumped approximately 1.5% against the dollar, recording its largest weekly gain since February.

Market participants widely believe that authorities in Tokyo intervened in currency markets last Thursday to keep the USD/JPY pair below the 160 level this year.

Barclays analysts noted: "With Japan entering the Golden Week holiday until next Wednesday, liquidity is likely to be thin and price movements more prone to one-way trends, so authorities may have sought to correct the level before this period."

According to sources cited by Reuters, Japanese authorities have already engaged in yen-buying operations for the first time in two years, although the Ministry of Finance did not immediately confirm the report. Reuters added that money market data from Friday suggests Tokyo may have spent up to 5.48 trillion yen ($35 billion) on currency purchases last week.

BCA Research analysts stated in a note: "Intervention can limit further yen weakness, but it does not necessarily create a sustained rally because macro factors continue to work against the currency." They pointed to high oil prices, the Federal Reserve's stance on interest rates, and low real interest rates in Japan as headwinds, alongside low implied volatility supporting yen-funded carry trades.

Dollar sees limited gains amid geopolitical tension

Parallel to the yen's movements, traders are closely monitoring developments in the conflict with Iran. Over the weekend, President Donald Trump announced a new initiative to assist ships stranded in the Strait of Hormuz, though specific details were sparse.

On Monday, joint maritime information centers reported that the U.S. established an "enhanced security zone" south of standard shipping lanes. Vessels were instructed to coordinate closely with Omani officials due to anticipated high traffic density, according to the Associated Press.

The U.S. Dollar Index, which measures the greenback against a basket of currencies, rose 0.1% to 98.22. The Euro remained largely stable at $1.1722, while the British Pound fell 0.1% to $1.3563. The German Economy Ministry stated it is in contact with Washington following Trump's warning on Friday regarding a potential 25% tariff hike on European cars and trucks.

Meanwhile, British markets were closed on Monday for a public holiday. The Australian dollaroften viewed as a proxy for risk appetitefell 0.1% ahead of a key interest rate decision from the Reserve Bank of Australia this week, amid concerns about the war's impact on domestic inflationary pressures.