Most Asian currencies edged lower on Friday amid hawkish remarks from U.S. Federal Reserve officials and tariff threats from President Donald Trump, while Japan’s robust inflation data further fueled expectations of another rate hike.
The US Dollar Index rose 0.1% in Asia hours, while Dollar Index Futures also edged up.
Japan’s strong CPI print fuels rate hike bets
Japan’s core consumer prices rose by 3.2% in January compared to the previous year, marking the fastest increase in 19 months. This surge, driven by higher costs for fuel and food, has led to a broader rise in overall consumer inflation to 4.0% in January.
The Bank of Japan (BOJ) recently raised its short-term interest rate to 0.5% and is expected to consider further hikes, potentially reaching 0.75% in the third quarter of 2025, if wage growth and consumption trends continue to support sustained inflation.
The yen had strengthened to a 2.5-month high against the U.S. dollar earlier in the day, reflecting market expectations of higher Japanese interest rates.
However, the Japanese yen’s USD/JPY pair rose 0.4% on Friday, as part of a natural price adjustment, after falling nearly 1.3% on Thursday.
“Core inflation accelerated faster than expected in January, while Japan’s service-led recovery continued. The Bank of Japan (BoJ) is expected to deliver a 25 bp rate hike in May, though a sharp rise in the JPY complicates the economic outlook,” ING analysts said in a note.
Other data from Japan showed that the country’s manufacturing activity shrank for the eighth consecutive month in February amid labor shortages and persistent inflation.
Most Asian currencies muted amid US tariff, rate jitters
Trump’s recent announcement of impending tariffs on automobile, semiconductor, and pharmaceutical imports has heightened market caution.
Meanwhile, recent comments from Fed Governor Adriana Kugler further stoked caution among investors, as she supported the central bank’s stance to delay rate cuts in light of sticky inflation.
The ambiguity around Trump’s plans has heightened the Fed’s hesitation to implement rate cuts in 2025.
The Chinese yuan’s offshore pair USD/CNH edged 0.1% higher, while the Singapore dollar’s USD/SGD was largely unchanged.
The Indonesian rupiah’s USD/IDR pair rose 0.1%, while the Indian rupee’s USD/INR pair was muted.
The Australian dollar’s AUD/USD pair edged up 0.1%.
The South Korean won’s USD/KRW pair was also steady ahead of the Bank of Korea’s interest rate decision due next week.
The BOK is expected to lower its benchmark interest rate by 25 basis points on Tuesday to help stimulate an economy that saw minimal growth last quarter, according to a Reuters poll.
