The dollar fell in Tuesday trading as Asian markets reopened, while investors assessed a highly uncertain trade environment. The Japanese yen, meanwhile, came under pressure following reports about a potential political intervention.

Pressure on the yen after reports on the prime ministers stance

The yen declined by 0.83% to 155.93 per dollar, hitting its lowest level in nearly two weeks, after a report by the Mainichi Daily said that Japanese Prime Minister Sanae Takaichi told Bank of Japan Governor Kazuo Ueda last week that she had reservations about moving ahead with further interest rate hikes.

The report also pushed Japanese government bond yields lower, adding complexity to Japans political and monetary landscape at a time when the central bank is struggling with currency weakness that has raised fuel and food import costs for Japanese households.

Before the report, most economists surveyed by Reuters had expected interest rates to rise to 1% by the end of June, while markets had priced in around a 70% chance of a rate hike by April.

Kenneth Broux, Head of Corporate Research and FX and Rates at Societe Generale, said: This development tests the view that the yen had started to recover. He added, If the government is pressuring the central bank, doubts about its independence will return.

Takaichi told parliament that a weaker currency has both positive and negative effects.

Chinese export restrictions affecting Japanese companies also added pressure to the currency, with the yen falling 0.8% to 183.75 against the euro.

Potential US intervention to support the Japanese currency

The yen has also remained under the watch of US authorities. Nikkei reported that the Federal Reserve Bank of New York, acting on behalf of the US Treasury Department, carried out what are known as rate checks last month to support the Japanese currency without a formal request from Tokyo.

Broux said this suggests that Japan is not overly concerned about the yen, despite verbal interventions aimed at slowing its decline.

Unstable trade environment

These developments come as investors face continued trade uncertainty.

The Supreme Court of the United States ruled on Friday that President Donald Trumps use of the 1977 emergency law to impose tariffs exceeded his authority. However, Trump invoked a different law and imposed new tariffs on all imports just hours later.

An initial 10% tariff took effect one minute after midnight Tuesday, according to a customs notice, while the timing of Trumps proposed increase to 15% remains unclear. So far, the president has signed an executive order covering only the 10% rate.

Trump also warned countries against backing away from recent trade agreements following the Supreme Courts decision to strike down the emergency tariffs.

Ray Attrill, Head of FX Strategy at National Australia Bank, said in the banks podcast: We are now back in a highly uncertain environment.

He added that uncertainty surrounds the future shape of global trade at a time when many countries had already signed agreements or were close to doing so.

Additional concerns: artificial intelligence and geopolitical tensions

These developments coincide with rising market skepticism about the sustainability of heavy investment in artificial intelligence, alongside concerns among Federal Reserve policymakers over persistently elevated inflation.

Traders are also monitoring rising geopolitical tensions, after the US State Department announced the withdrawal of non-essential government personnel and their families from the US embassy in Beirut amid growing fears of a possible military conflict with Iran.

Major currency performance

The euro remained steady at $1.1785.

The British pound was little changed at $1.3487.

The European Parliament decided on Monday to delay a vote on the trade agreement between the European Union and the United States because of the new import tariff.

Meanwhile, the Chinese yuan reached its highest level against the dollar in nearly three years, supported by expectations that the new tariff system could lead to reduced taxes on Chinese exports.