Most Asian currencies moved in a tight range on Friday as the dollar recovered further from recent lows, while the Japanese yen firmed after the Bank of Japan outlined plans to begin selling its massive asset holdings.
Most regional currencies were headed for muted weekly performances, while the dollar was set for mild declines after the Federal Reserve cut interest rates as expected, and signaled that it will cut rates further in the coming months.
But the central bank’s rate cut outlook was not as dovish as some were expecting, which helped the greenback recover from an over three-year low. This in turn pressured most Asian currencies.
Japanese yen firms as BOJ ETF sales spur hawkish bets
The Japanese yen’s USD/JPY pair fell 0.5% after the BOJ left interest rates unchanged at 0.5% as widely expected. Two members of the bank’s nine-member rate-setting board, however, called for a 25 basis point hike.
The central bank outlined plans to being selling its massive holdings of exchange-traded funds and real estate investment trusts.
The BOJ said it will sell ETFs at a pace of about 330 billion yen ($2.24 billion) per annum, while REITS will be sold at a pace of 5 billion yen annually. Morgan Stanley estimated that the BOJ’s total ETF holdings stood at 79.5 trillion yen ($533.67 billion), with unrealized gains of 43.8 trillion yen.
The move struck markets as hawkish, given that the BOJ had proposed trimming its balance sheet when it began unwinding nearly a decade of ultra-loose monetary policy in early-2024.
Friday’s move also drummed up some expectations for more interest rate hikes by the BOJ. But the prospect of an imminent hike remained uncertain, given that the bank is still grappling with increased political uncertainty in the wake of Prime Minister Shigeru Ishiba’s abrupt resignation in September.
The BOJ on Friday also flagged heightened caution over the impact of U.S. trade tariffs on the economy and the path of domestic inflation.
Focus is now on BOJ Governor Kazuo Ueda’s post-meeting address later in the day. Ueda has largely maintained his stance that interest rates will rise in tandem with sticky inflation.
Data earlier in the day showed Japanese consumer price index inflation eased as expected in August, with core CPI also retreating.
But underlying inflation remained well above the BOJ’s 2% annual target, keeping some speculation over more interest rate hikes by the central bank in play.
Dollar drifts higher, Asia FX treads water
The dollar index and dollar index futures both rose nearly 0.1% in Asian trade, mildly extending overnight gains.
While the greenback had tumbled to its lowest levels since early-2022 before the Fed’s decision this week, it recovered steadily over the past two sessions.
The Fed cut interest rates by a quarter percentage point as expected, citing concerns over a cooling labor market. But the central bank still declined calls for deeper cuts, citing concerns over sticky inflation.
Signs of labor market weakness continued to trickle in with data on Thursday showing a large, albeit slightly smaller than expected increase in weekly jobless claims.
Most Asian currencies tread water this week as markets digested a mixed outlook for U.S. interest rates. A lack of clear regional trading cues also weighed.
The Chinese yuan’s USD/CNY pair rose slightly, remaining in sight of a recent 10-month low. Beijing announced plans to dole out more stimulus measures aimed at boosting private consumption, following a string of weak economic prints for August.
The Indian rupee’s USD/INR pair rose back above the 88 rupee level and in sight of record highs, with focus on trade dialogue between New Delhi and Washington over the latter’s steep trade tariffs.
The South Korean won’s USD/KRW pair rose 0.4%, while the Singapore dollar’s USD/SGD pair rose 0.1%.
The Australian dollar’s AUD/USD pair was flat after hitting 10-month highs earlier.
Source :
https://www.investing.com/news/forex-news/asia-fx-muted-as-dollar-recovers-yen-flat-with-boj-in-focus-4246032
