Asian currencies traded mostly mixed on Wednesday as the US dollar remained close to multi-week highs. The Japanese yen weakened to a one-week low ahead of major central bank decisions in the United States and Japan.
The US Dollar Index held near 99.63 after strengthening alongside Treasury yields in recent sessions.
Yen Weakens as Dollar Holds Gains
The USD/JPY pair rose around 0.2%, pushing the yen further away from its recent seven-month high of 152.89.
The yen traded near 155.34 per dollar after touching a one-week low of around 155.43 during Asian trading.
Despite the latest weakness, the yen remains supported by growing expectations of tighter monetary policy in Japan, coordinated intervention by Japan and the United States, and signs of capital returning to Japanese markets.
Fed Decision Keeps Dollar in Focus
The US dollar has gained momentum as investors increasingly expect the Federal Reserve to resume raising interest rates.
Markets are watching for what could be the first increase in a new tightening cycle.
Higher energy prices linked to the Middle East conflict have added to inflation concerns and pushed Treasury yields higher.
This has made the inflation outlook more challenging, particularly for economies that depend heavily on imported energy.
Analysts at ANZ said they expect the Federal Reserve to continue raising rates at consecutive meetings if the tightening cycle resumes.
Bank of Japan Rate Hike Bets Remain Strong
Expectations for a Bank of Japan rate increase remain elevated.
Markets are pricing in roughly an 80% probability of a rate hike at Friday’s meeting. Investors are also expecting two increases of 25 basis points by the end of January.
However, Bank of America analysts said the chances of consecutive rate hikes remain relatively limited.
They suggested that expectations for more aggressive tightening could increase if USD/JPY reverses its recent decline and returns to levels seen before the latest intervention.
New Zealand Dollar Among Weakest Currencies
The New Zealand dollar was one of the weaker major currencies.
NZD/USD fell around 0.7% to $0.5742.
Meanwhile, EUR/USD and GBP/USD were broadly unchanged, while the Australian dollar traded near $0.7128.
South Korean Won and Chinese Yuan Remain in Focus
The South Korean won weakened modestly, with USD/KRW rising around 0.2% to 1,364.73.
However, the won has strengthened significantly against the dollar since the end of June. Its gains have been supported by capital repatriation and strong profits from South Korean semiconductor companies.
The Chinese yuan remained relatively resilient.
USD/CNH traded near 6.7104, while USD/CNY stood close to 6.7098.
The yuan’s recent rally has slowed near the 6.71 level, but the currency has largely maintained its gains despite the gap between China’s lower interest rates and higher yields in other major economies.
Asian FX Markets Remain Mixed
Elsewhere in Asia, currency movements were mixed.
USD/SGD rose slightly, while USD/INR moved lower. The Malaysian ringgit strengthened sharply, while the Indonesian rupiah weakened modestly against the dollar.
With the Federal Reserve decision due on Wednesday and the Bank of Japan meeting scheduled for Friday, the relationship between the dollar and yen is likely to remain a major focus for Asian currency markets.
