Most Asian currencies traded in a narrow range on Wednesday, as stable U.S. inflation data reinforced expectations that the Federal Reserve will still move ahead with interest-rate cuts later in 2026. At the same time, markets closely followed political developments in Japan and assessed fresh trade data from China.
The U.S. dollar edged higher during Asian trading hours, with the Dollar Index rising 0.1% after modest overnight gains. Dollar Index futures were also up 0.1% as of early morning GMT.
Data released on Wednesday showed that U.S. consumer inflation came in broadly in line with forecasts, supporting the view that price pressures remain under control. The benign inflation reading strengthened market confidence that the Federal Reserve will deliver at least two rate cuts later next year.
Yen slides to 18-month low on Japan election speculation
The Japanese yen weakened sharply, falling to its lowest level in roughly one and a half years against the dollar. The USD/JPY pair rose 0.2% to 159.45, marking its highest point since June 2024.
Local media reports indicated that Japanese Prime Minister Sanae Takaichi is expected to brief her Cabinet on plans to dissolve parliament, with February 8 emerging as a potential date for a snap lower-house election.
Investor focus has centered on Takaichi’s commitment to aggressive fiscal expansion, including large-scale stimulus measures designed to support growth and combat deflation. Such policies could place additional strain on the yen by boosting public debt and delaying any move toward tighter monetary policy from the Bank of Japan.
This expectation of a politically driven spending push—often referred to by traders as the “Takaichi trade”—has added to downward pressure on the currency in recent sessions.
China trade data highlights resilience
In China, December trade figures pointed to continued strength in external demand. Data released on Wednesday showed a solid trade surplus, as exports exceeded expectations while imports also recorded healthy growth, signaling improving domestic consumption.
For the full year 2025, China’s trade surplus expanded to a record $1.25 trillion. Weakness in exports to the United States was largely offset by stronger demand from other global markets.
The Chinese yuan remained relatively stable, with the onshore USD/CNY pair little changed, while the offshore USD/CNH rate edged 0.1% higher.
Elsewhere in Asia, the South Korean won weakened modestly, with USD/KRW rising 0.2%, while the Singapore dollar traded flat against the U.S. dollar. The Indian rupee strengthened slightly, as USD/INR slipped 0.2%.
Meanwhile, the Australian dollar gained ground, with AUD/USD climbing 0.2% during the session.
