Most Asian currencies traded in narrow ranges on Friday amid thin year-end liquidity, while the U.S. dollar hovered near 12-week lows. Investors remained cautious as they reviewed fresh Japanese economic data and reassessed expectations for future U.S. interest rate cuts.
Trading activity across Asian foreign exchange markets was subdued, with many participants away for the holidays. The U.S. Dollar Index, which tracks the greenback against a basket of major currencies, was largely unchanged during Asian hours and remained close to its weakest level since early October.
The dollar has softened in recent weeks as markets increasingly expect the Federal Reserve to cut interest rates further in 2026, supported by signs of cooling inflation. Falling U.S. Treasury yields have also pressured the greenback, offering limited support to Asian currencies despite the low-volume trading environment.
Tokyo inflation and Japan data in focus
In Japan, the yen weakened slightly, with the USD/JPY pair rising 0.2%. Data released on Friday showed that consumer inflation in Tokyo eased in December compared with the previous month, but remained above the Bank of Japan target. This kept expectations for additional rate hikes largely intact.
The figures reinforced the view that the BOJ remains on a gradual path toward policy normalisation, even as uncertainty persists over the pace of tightening. Separate data showed Japan’s industrial production fell in November, underscoring ongoing weakness in the manufacturing sector amid soft global demand.
In contrast, retail sales increased, signalling resilience in household spending. The mixed economic signals left the yen trading within a tight range.
Asian currencies subdued amid holiday lull
Elsewhere in the region, most Asian currencies saw limited movement as the lack of fresh catalysts and holiday-thinned markets discouraged new positions. The South Korean won strengthened slightly, with USD/KRW down 0.3%, while Singapore’s USD/SGD edged up 0.1%. The Indian rupee was largely unchanged.
In China, the onshore yuan (USD/CNY) was little changed, while the offshore yuan (USD/CNH) ticked 0.1% higher. The Australian dollar also remained largely flat against the U.S. dollar, reflecting the broader muted tone across Asian FX markets.
