Most Asian currencies traded within narrow ranges on Monday, while the Japanese yen edged higher after Japan’s finance ministry stepped up warnings about possible intervention in currency markets.
Despite the modest rebound, the yen continued to reflect recent losses, weighed down by concerns over expanding government spending. These worries are expected to linger after Prime Minister Sanae Takaichi secured a decisive victory in Sunday’s lower house election.
Across the region, Asian currencies remained subdued after weeks of pressure from a stronger U.S. dollar. Market attention is now shifting to a busy calendar of economic data releases from the United States and China later this week.
Yen supported by intervention signals after election win
The yen strengthened slightly, with the USD/JPY pair down 0.2% at 156.87, after earlier losses of up to 0.5%. Although the currency remains weak against the dollar, it found support from repeated warnings by Japanese officials that direct market intervention remains an option.
Finance Minister Satsuki Katayama said authorities were in close coordination with U.S. Treasury officials, raising the possibility of joint action to stabilise the currency.
These comments offered temporary relief for the yen, which has come under renewed pressure following Takaichi’s landslide victory. Her ruling coalition now controls a supermajority in the lower house, giving her greater scope to push forward fiscal spending plans.
Fears over rising government expenditure have been a key drag on the yen and earlier this year also triggered a sharp sell-off in Japanese government bonds.
Analysts at OCBC noted that currency markets remain cautious, warning that a more expansionary fiscal stance could further weaken the yen. However, they added that as USD/JPY approaches the 160 level, expectations of official pushback—through rate checks or direct intervention—are likely to intensify.
Dollar eases, Asian FX stays muted
The U.S. dollar softened slightly in Asian trade, with the dollar index extending its pullback from highs near 98 reached last week. Positioning in the greenback has become more cautious ahead of key U.S. economic data, including nonfarm payrolls due on Wednesday and consumer price inflation figures scheduled for Friday.
These releases are expected to provide further clues on the future path of U.S. interest rates, as markets assess policy direction at the Federal Reserve under President Donald Trump’s nominee for chair, Kevin Warsh.
In Asia, the Chinese yuan slipped 0.1% and remained near its weakest levels since mid-2023. The currency has seen periods of support in recent months as the People’s Bank of China set consistently strong daily fixings. China’s CPI data, due on Friday, is also in focus ahead of the Lunar New Year holidays.
The Australian dollar gained 0.2%, climbing back above the $0.70 level as investors priced in the likelihood of further rate hikes by the Reserve Bank of Australia. The RBA raised rates by 25 basis points last week and signalled a hawkish outlook amid persistent inflation pressures.
Elsewhere, the Singapore dollar was little changed, while the South Korean won weakened slightly. The Indian rupee also edged lower, staying above the 90-per-dollar mark after the Reserve Bank of India kept rates steady last week while raising its inflation and growth forecasts.
