Asian currencies traded in narrow ranges on Thursday as a firm U.S. dollar continued to weigh on regional markets. The Japanese yen weakened after the Bank of Japan’s latest policy summary delivered mixed signals about the timing and pace of future interest rate increases.
The U.S. Dollar Index traded near 101.62, up around 0.2%. The index gained roughly 2% in September, marking its strongest monthly performance since June.
Higher U.S. Treasury yields continued to support the dollar. However, softer U.S. inflation data and downward revisions to July figures reduced expectations for another Federal Reserve rate increase in October.
Yen Weakens as BOJ Rate Outlook Remains Unclear
The USD/JPY pair rose about 0.5% to 158.24, leaving the Japanese yen close to a two-week low.
The Bank of Japan’s September meeting summary showed that policymakers remained divided over the strength of Japan’s economy and how quickly interest rates should rise.
Some members argued that the BOJ should accelerate rate increases or move borrowing costs toward their longer-term target more quickly.
Others remained cautious, noting that although second-quarter economic growth was positive, domestic demand contracted. This raised questions about whether Japan’s economic expansion was strong enough to support faster monetary tightening.
Markets now see less than a 20% probability of a BOJ rate increase by October 30, down from more than 30% earlier in the week. However, investors are fully pricing in a potential increase by December.
DBS said Japan could continue to benefit from strong overseas demand, particularly from investment linked to artificial intelligence.
Dollar Strength Limits Asian Currency Gains
Most major Asian currencies remained within recent trading ranges as continued dollar strength limited upside momentum.
The stronger greenback has been supported by elevated U.S. bond yields and expectations that global interest rates could remain high for longer.
September was also a difficult month for global bond markets. Government bonds recorded one of their largest monthly declines in years amid concerns over rising debt issuance, weakening public finances and renewed inflation pressures.
Euro Extends September Losses
The EUR/USD pair fell around 0.1% to 1.13, extending its weakness after dropping nearly 2.5% during September.
That marked the euro’s steepest monthly decline since July 2025.
The European currency has faced pressure from concerns surrounding government debt, rising energy prices and inflation.
Higher euro-zone inflation has also increased expectations that the European Central Bank may need to maintain restrictive monetary policy for longer.
Australian Dollar Remains Near Two-Month Low
The Australian dollar traded near a two-month low, with AUD/USD around $0.69 and remaining below the key $0.70 level.
Australia’s trade surplus narrowed sharply to A$495 million in August, compared with a revised A$1.35 billion in July.
The result was significantly below economists’ expectations of approximately A$2 billion.
The data came shortly after the Reserve Bank of Australia increased its cash rate by 25 basis points to 4.60%, its highest level since 2011.
Chinese Yuan Holds Firm Ahead of Holiday
The offshore USD/CNH pair edged higher to around 6.72, while the onshore USD/CNY rate remained broadly unchanged near 6.70.
Despite the stronger dollar, the Chinese yuan completed its seventh consecutive quarterly gain against the greenback before markets closed for China’s National Day holiday.
Mainland Chinese markets are scheduled to remain closed from October 1 through October 7, reopening on October 8.
Hong Kong markets were also closed on Thursday, contributing to lower trading volumes across the region.
South Korean Exports Surge
South Korea reported exceptionally strong export growth in September.
Exports jumped 83.5% from a year earlier, comfortably exceeding expectations for a 62% increase and reaching a record monthly level.
Despite the positive trade figures, the South Korean won remained under pressure. The USD/KRW pair rose around 0.2% to 1,359.80.
DBS said strong exports should continue to offer support to the won. However, the bank expects further gains to be limited as currency valuations become more neutral and portfolio outflows potentially increase.
Rupiah Falls as U.S. Yields Remain High
The Indonesian rupiah also weakened, with USD/IDR rising about 0.7% to 17,949.
The currency remained under pressure from a stronger dollar, elevated U.S. Treasury yields and high oil prices.
Elsewhere in Asia, the Indian rupee was relatively stable, while the Singapore dollar and New Zealand dollar weakened modestly against the U.S. currency.
Overall, Asian currency markets remained subdued as investors balanced a strong U.S. dollar against shifting expectations for interest rates across the region.
