by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with thoughts on the possibility that Japan intervened in its currency market. We then examine Saudi Arabia’s push for a military coalition in the Red Sea. Additionally, we discuss the White House’s deal with Hamas to disarm, the US’s consideration of withholding licenses from Ukraine, and another AI hacking controversy. As always, we include a review of recent domestic and international economic data.

Return of the Widow Maker? The Japanese yen staged a sharp rally against the dollar on Thursday, reversing weeks of weakness amid mounting speculation that authorities had intervened. While the Ministry of Finance declined to confirm its involvement, the move would align with its recent warnings that it stands ready to act against excessive volatility. Notably, Japanese officials hinted at possible US coordination, a development that could signal that the White House may be softening its long-standing commitment to a strong-dollar policy.

• When Japanese officials were asked directly about their involvement, they stated only that they remained on high alert and prepared to respond appropriately to currency markets. Additionally, they stated the US provided more than just “moral support,” with reports of US rate checks. While US Treasury Secretary Scott Bessent noted that Japan may have intervened, he offered implicit support for the yen by commenting that the currency appeared “very undervalued.”
• While neither side has confirmed the extent of their coordination, US-Japan cooperation to curb yen speculation has clearly intensified over the past year. In September, the two nations agreed to coordinate more closely to limit currency volatility. Furthermore, preceding the first suspected intervention by Japan’s Ministry of Finance in nearly two years in January, US officials also conducted rate checks. Consequently, recent actions point to a broader pattern suggesting Japan may not be acting alone in its effort to support the yen.
• The effort to prevent the yen from weakening comes amid rising pressure for Japan to adopt more accommodative policies to support growth. Prime Minister Sanae Takaichi has been exploring ways of combining monetary and fiscal measures to jump-start the economy. The move has helped trigger a selloff in both Japanese government bonds and the yen, as investors worry it could stoke inflation.
• That said, US support for efforts to strengthen the yen highlights a growing ambivalence toward a strong dollar policy. Washington also showed a willingness to support Argentina during its currency crisis in October, underscoring a more activist Treasury stance. In that environment, the dollar’s recent uptrend could face pressure from White House policy, and investors may want to maintain at least some international exposure to hedge against this risk.

Saudi Coalition: Saudi Arabia has launched a Red Sea Coalition aimed at bolstering maritime security in the strategically vital waterway. This initiative comes in response to escalating threats posed by Iranian-backed Houthi forces, whose recent attacks have disrupted global shipping lanes. While Riyadh’s effort to rally regional allies underscores its growing ambition to become a regional power, the move carries inherent risks. By accelerating its military buildup, the coalition may prompt neighboring states to enhance their defensive capabilities in response.

• The coalition was formed following a 43-nation summit in Riyadh focused on maritime security. Following the talks, 14 nations — including Egypt, Sudan, Pakistan, and Turkey, alongside smaller Arab and African states — agreed to join. Notably absent were Oman and the United Arab Emirates due to delicate diplomatic relations regarding Iran in the Strait of Hormuz, though both are welcome to join in the future. Saudi Arabia will host the coalition’s headquarters and serve as its leading nation.
• Riyadh’s heightened engagement comes against the backdrop of significant economic strain caused by the ongoing conflict. The country’s second quarter GDP contracted by nearly 5% year-over-year, largely weighed down by a sharp decline in the oil sector. While higher energy prices have provided a partial cushion against reduced trade volumes, the kingdom continues to face economic headwinds alongside physical threats to its energy infrastructure from Iran and its regional proxies.
• Saudi Arabia’s push to form a regional coalition likely reflects its growing willingness to shoulder more of its own security burdens. While this expanded authority may bolster Riyadh’s regional standing, it also increases the likelihood that the kingdom will have to directly defend itself. Given the region’s long history of territorial disputes (rooted in the 1916 Sykes-Picot agreement), this shift could open the door for more military buildup throughout the region.

Hamas Disarms? President Trump announced an agreement for the complete disarmament of Hamas, a process expected to unfold over the next 200 to 300 days. While Hamas acknowledged that the deal was struck with the White House, significant concerns remain regarding its implementation. Hamas insists it will only surrender its weapons after Israeli troops leave, whereas Israel maintains that disarmament must occur first. Despite these challenges, the agreement represents a major breakthrough and could calm tensions in the Middle East.

US Backtracks: President Trump appeared to back away from his earlier commitment to allow Ukraine to produce Patriot missiles. The shift came after two days of meetings with Ukrainian President Volodymyr Zelensky at the White House. The reversal is likely to complicate Ukraine’s efforts to press its advantage against Russia, including drone strikes on oil refineries. It may also signal that Trump is extending an olive branch to Moscow in hopes of bringing Russia back to the negotiating table for peace talks.

Anthropic Hack: The AI developer disclosed that one of its autonomous agents hacked three organizations during a routine test. This marks the second time in under a month that an agent has escaped its sandbox environment and infiltrated external systems, intensifying concerns over the capabilities of frontier AI following the release of powerful models like Mythos and Sol. Although neither incident was malicious, the prospect of a similar attack on a major platform remains alarmingly high — and could pressure US regulators to accelerate new legislation.

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