Asia FX Rangebound as Dollar Stabilizes After CPI; Yen Falls on Weak Japan GDP
Most Asian currencies traded within a narrow range on Monday as holiday closures across the region kept volumes subdued. The U.S. dollar held steady following mixed consumer inflation data, while the Japanese yen weakened after disappointing fourth-quarter GDP figures.
Financial markets in China, Taiwan and South Korea were closed for holidays, reducing regional liquidity. U.S. markets were also shut on Monday, contributing to limited movement in the dollar.
Japanese Yen Pressured by Weak Q4 Economic Growth
The USD/JPY pair rose 0.2% after data showed Japan’s economy expanded far less than expected in the fourth quarter. The soft GDP reading reflected weaker-than-forecast business investment, while exports and private consumption also remained sluggish.
The latest figures suggest that the fiscal stimulus package approved in late 2025 has yet to meaningfully support economic growth. As a result, Prime Minister Sanae Takaichi may face growing pressure to introduce additional spending measures.
After her ruling coalition secured a supermajority in Japan’s lower house, Takaichi is widely seen as having the political backing needed to push through further fiscal stimulus. However, concerns about rising government spending and Japan’s fragile economic outlook could weigh on the yen. Slower growth also reduces the likelihood of further interest rate hikes from the Bank of Japan in the near term.
Dollar Steady Following Mixed U.S. CPI Data
The dollar index and its futures were little changed in Asian trade, holding on to most of last week’s decline. Investors showed limited reaction to Friday’s U.S. consumer price index report. Headline inflation came in slightly below expectations, while core CPI matched forecasts.
Despite the mixed inflation signals, uncertainty surrounding the long-term interest rate outlook — particularly ahead of an upcoming leadership transition at the Federal Reserve — has dampened demand for the dollar. A sharp sell-off in U.S. equities last week also added pressure on the greenback.
However, analysts at OCBC suggested that significant additional downside for the dollar may be limited, especially if upcoming U.S. economic data remains resilient. They noted that easing wage and inflation pressures could support long-term Treasury bonds, restoring some of the dollar’s safe-haven appeal and preventing a deeper decline.
Key U.S. Data and Fed Minutes in Focus
Markets are now turning their attention to upcoming U.S. economic releases, including industrial production, trade data, and the Personal Consumption Expenditures (PCE) price index — the Federal Reserve’s preferred measure of inflation. Minutes from the Fed’s January policy meeting are also due this week and may provide further guidance on the rate outlook.
Broader Asian Currencies Quiet in Thin Trade
Elsewhere in Asia, currency movements were modest due to reduced trading activity. The Australian dollar rose 0.2%, hovering near three-year highs after hawkish signals from the Reserve Bank of Australia last week.
The Indian rupee weakened slightly, with USD/INR rising 0.2% toward 90.7, while the Singapore dollar edged lower after January non-oil export data disappointed expectations.
Chinese markets will remain closed for the rest of the week. Meanwhile, the offshore yuan (USD/CNH) fell 0.2%, supported by expectations of stronger seasonal demand during the Lunar New Year period.
