Asian currencies were mostly stronger against the US dollar on Tuesday, led by a sharp rally in the Japanese yen.
The dollar remained under pressure as investors waited for upcoming US inflation data, which could influence expectations for the Federal Reserve’s next interest-rate decision.
Yen Climbs to Seven-Month High
The USD/JPY pair fell around 0.7% to 153.34.
Earlier in the session, the yen strengthened to 152.89 per dollar, its strongest level since February.
That move also pushed the currency beyond levels reached during Japan’s intervention in July.
The yen has now gained roughly 4.5% from around 160 per dollar at the beginning of last week.
Dollar Stays Weak Ahead of US Inflation Data
The US Dollar Index fell 0.11% to 98.81.
Investors remain focused on upcoming US consumer inflation data, which will be one of the final major economic releases before the Federal Reserve’s September 15-16 policy meeting.
Markets are currently pricing roughly a 60% chance of a September Fed rate hike following last week’s stronger-than-expected US payrolls report.
The inflation data could determine whether those expectations strengthen or begin to fade.
BOJ Rate Hike Expectations Support Yen
The yen’s latest rally has been supported by growing expectations that the Bank of Japan will continue tightening monetary policy.
Investors are also watching for signs of capital returning to Japan, an unwind in yen-funded carry trades and increased political attention on the currency.
Japan’s economy expanded at an annualised 1.4% rate in the April-June quarter, revised higher from an earlier estimate of 1.1%.
The stronger economic data has added to expectations for another Bank of Japan rate increase.
Markets are now pricing roughly a 75% probability of a 25-basis-point BOJ hike on September 18.
There is also around a 60% chance of another increase by December.
Japan Keeps Currency Intervention in Focus
Japanese Finance Minister Satsuki Katayama said Tokyo’s approach to currency markets had not changed following its recent joint intervention with the United States.
She also said Japan would remain in close contact with US Treasury Secretary Scott Bessent.
Currency intervention remains an important factor for traders.
Japan’s foreign securities holdings fell by a record $87.8 billion in August, close to the scale of its most recent currency intervention.
The Finance Ministry has said intervention activity contributed to the decline in foreign reserves.
South Korean Won Strengthens
The South Korean won also gained against the dollar.
USD/KRW fell around 0.3% to 1,340.80, leaving the won near its strongest level since October 2024.
The currency has benefited from foreign investment flows into South Korean equities and strong performance in semiconductor stocks.
South Korea’s economy expanded 0.6% quarter-on-quarter and 3.7% year-on-year during the second quarter.
Semiconductor exports helped offset weaker construction investment.
Foreign Investors Support Korean Markets
Continued foreign buying of South Korean stocks has also increased demand for the won.
Strong interest in semiconductor companies remains an important driver of capital inflows.
However, the recent pace of the won’s appreciation may become harder to sustain if global risk sentiment weakens or the dollar begins to recover.
Chinese Yuan Holds Near Multi-Year High
China’s yuan remained firm near a three-and-a-half-year high.
Both USD/CNH and USD/CNY traded around 6.71.
The currency has received support from strong Chinese trade data.
China’s exports surged 25% year-on-year in August, while imports increased 28.2%.
Strong global demand for high-tech and artificial intelligence products helped support trade despite weakness in China’s domestic economy.
Australian and New Zealand Dollars Weaken
The Australian dollar moved slightly lower.
The USD/AUD pair rose around 0.1% to 1.3862 after a sharp decline in consumer sentiment raised concerns about household finances.
The New Zealand dollar also weakened.
USD/NZD rose around 0.42% to 1.707, implying a New Zealand dollar exchange rate near $0.5859.
Other Asian Currencies Trade Mixed
Elsewhere in Asia, the Singapore dollar strengthened modestly.
USD/SGD fell around 0.12% to 1.2645.
The Indian rupee moved in the opposite direction, with USD/INR rising around 0.21% to 94.685.
Asian FX Outlook Depends on Fed and BOJ
Asian currency markets remain heavily influenced by expectations surrounding the Federal Reserve and Bank of Japan.
A more hawkish BOJ could continue supporting the yen and place further pressure on the dollar.
At the same time, stronger-than-expected US inflation could revive dollar demand by increasing expectations for tighter Federal Reserve policy.
For now, investors remain focused on US inflation data, upcoming central bank meetings and the possibility of further currency intervention in Japan.
