Most Asian currencies traded in narrow ranges on Friday as investors evaluated the outlook for U.S. interest rate cuts following softer inflation data, while the Bank of Japan implemented a widely anticipated tightening of monetary policy.
The U.S. Dollar Index, which tracks the greenback against a basket of major currencies, rose 0.1%. U.S. Dollar Index futures were also up 0.1% as of 04:04 GMT, reflecting modest support for the dollar.
BOJ hikes rates as expected
The Bank of Japan raised its short-term policy rate to 0.75%, marking another move away from its long-standing ultra-loose policy stance. The decision had been broadly priced in by markets.
The central bank said price growth and wage trends are becoming more sustainable, noting steady progress toward achieving its inflation target. Officials pointed to improving corporate pricing behavior and firm wage agreements as key drivers behind the decision. Governor Kazuo Ueda is scheduled to hold a press conference later in the day to outline the rationale and offer guidance on the pace of future rate hikes.
The yen remained relatively stable, with USD/JPY up 0.2% at 155.92, as traders weighed uncertainty over how aggressively the BOJ may tighten policy going forward. The muted reaction suggested the move had limited spillover effects on other Asian currencies.
Data released on Friday showed Japan’s consumer price inflation held steady in November, broadly in line with expectations. While underlying inflation cooled slightly, it remained well above the Bank of Japan’s annual target.
Fed rate cut expectations grow after soft CPI
Currency markets across Asia stayed subdued as attention shifted to the U.S. monetary policy outlook. The latest U.S. consumer price index data showed inflation easing more than expected in November, with headline inflation slowing to 2.7%.
The softer inflation reading strengthened expectations that the Federal Reserve could begin cutting interest rates next year. However, investors remained cautious after U.S. officials warned that the data may have been distorted by disruptions in government operations, prompting a more measured market response.
ING analysts noted that skepticism around the scale of the inflation downside surprise, combined with the effects of the government shutdown, helps explain why Fed Chair Jerome Powell recently struck a relaxed tone. They added that the data leaves room for earlier and faster rate cuts in 2026.
Among regional currencies, the South Korean won strengthened, with USD/KRW down 0.3%, while the Singapore dollar also firmed, pushing USD/SGD lower by 0.2%. The Indian rupee traded largely flat.
In China, the onshore yuan USD/CNY was little changed, while the offshore yuan USD/CNH edged 0.1% higher. The Australian dollar slipped slightly, with AUD/USD down 0.1%.
