Asian Currencies Weaken on Geopolitical Tensions; Yen Gains Slightly After BOJ Decision
Most Asian currencies drifted lower on Tuesday, weighed down by ongoing risk aversion stemming from persistent concerns about the escalating conflict between Israel and Iran. Anxiety was heightened further by a stark warning from U.S. President Donald Trump.
The Japanese yen, however, strengthened modestly after the Bank of Japan (BOJ) left interest rates unchanged and announced a slower pace of bond purchase reductions, signaling a cautious approach to policy tightening.
Meanwhile, the U.S. dollar softened due to uncertainty about potential American involvement in the Middle East conflict. Trump’s recent comments raised fears of a U.S. entry into the war against Iran, but the White House clarified that the U.S. would not engage directly in the fighting. Reports also indicated that Washington is actively working toward a ceasefire and renewed nuclear discussions with Tehran.
Market attention this week is also directed at the upcoming Federal Reserve meeting, where policymakers are widely expected to hold rates steady.
Yen Rises as BOJ Maintains Rates, Adjusts Taper Plan
The USD/JPY pair slipped 0.2%, reflecting modest yen strength driven by both safe-haven demand and the BOJ’s monetary policy stance.
The BOJ held its short-term interest rate at 0.5%, as expected, and announced that it would slow the pace of its bond taper beginning in April 2026—from 400 billion yen per quarter to 200 billion yen. The move is seen as an effort to avoid market disruptions and maintain policy flexibility amid global uncertainty.
While the BOJ acknowledged risks to Japan’s growth from trade tensions and external economic weakness, it also remains concerned about persistent inflation at home. Investors are now watching closely for comments from BOJ Governor Kazuo Ueda, who has previously suggested the bank may continue raising rates if inflation remains elevated.
Regional Currencies Mostly Softer on Geopolitical Risk, Fed Caution
Broader Asian currencies traded slightly lower, as investor sentiment remained cautious ahead of the Fed’s decision and due to lingering geopolitical instability. Several other central banks—including those in China, the UK, and Switzerland—are also scheduled to announce rate decisions this week.
- The USD/CNY pair inched higher, reflecting some yuan weakness.
- The AUD/USD was little changed.
- The USD/SGD rose 0.1% after Singapore reported a surprise drop in non-oil domestic exports for May.
- The USD/KRW gained 0.2%, while the USD/INR also rose 0.2%.
Dollar Weakens Slightly on Middle East and Fed Uncertainty
The U.S. dollar index and futures edged lower during Asian hours, extending declines from the previous session. Uncertainty over Washington’s role in the Israel-Iran conflict continued to weigh on the greenback, although official statements clarified the U.S. is not directly entering the fray.
An Axios report indicated that American and Iranian officials are still engaged in backchannel efforts to broker a ceasefire and revive nuclear negotiations, though recent attempts have largely stalled.
Markets are now focused on the conclusion of the Fed’s two-day meeting on Wednesday. While no rate changes are expected, investors will closely analyze Fed Chair Jerome Powell’s remarks for any hints on the future direction of monetary policy.
