Most Asian currencies edged higher on Friday as the U.S. dollar moved toward its weakest weekly performance in six months. The Japanese yen, however, underperformed after the Bank of Japan kept interest rates unchanged while slightly upgrading its economic outlook.
Gains across the region were modest, as elevated geopolitical uncertainty continued to cap risk appetite. Markets remained cautious amid unclear terms surrounding a potential U.S. agreement over Greenland, while warnings from U.S. President Donald Trump about an “armada” heading toward Iran further dampened sentiment.
Japanese yen soft after BOJ decision
The Japanese yen weakened marginally on Friday, with the USD/JPY pair rising around 0.2% after the BOJ left its benchmark rate steady at 0.75% in a near-unanimous vote.
Alongside the decision, the central bank slightly raised its forecasts for inflation and economic growth for fiscal years 2025 and 2026, pointing to expectations of stronger support from government spending.
Despite this more optimistic outlook, the yen saw little benefit. Investor concerns over Japan’s stretched fiscal position continued to weigh heavily on the currency. Japanese government bonds came under notable selling pressure this week, driven by expectations of increased fiscal stress under Prime Minister Sanae Takaichi, who announced a snap election for early February.
Additional pressure on the yen came from fresh inflation data showing headline consumer prices cooled to their weakest pace since early 2022. Core inflation, however, remained above the BOJ’s 2% annual target.
Market attention is now turning to remarks later on Friday by BOJ Governor Kazuo Ueda, which are expected to provide further guidance on the central bank’s policy outlook. In its statement, the BOJ reiterated that interest rates are likely to rise as inflation and growth progress in line with projections.
Asian currencies supported by weaker dollar
Excluding the yen, most Asian currencies advanced on Friday, benefiting from broad-based dollar weakness.
Although the dollar index and related futures posted small gains during Asian trading hours, both remained down by just over 1% for the week, marking their sharpest weekly decline since June 2025.
The Chinese yuan strengthened further, with the USD/CNY pair slipping 0.1% and hovering near its strongest level since mid-2023. The People’s Bank of China set the daily midpoint below the key 7-per-dollar level for the first time since 2023, signaling firm official support for the currency.
The Australian dollar also edged higher, while the Singapore dollar and Taiwan dollar both gained around 0.1%. In contrast, the South Korean won lagged, with USD/KRW rising 0.2%.
The Indian rupee remained under pressure, with USD/INR holding above 91. The currency stayed on the defensive after hitting a record low earlier in the week, as uncertainty over a potential India–U.S. trade agreement continued to unsettle investors.
