Most Asian currencies were contained within a tight trading band on Monday while the Japanese yen found modest support after officials signaled a readiness to step into currency markets if required. The move offered only temporary relief to the yen, which remains under pressure amid concerns about Japan's fiscal trajectory following a decisive electoral outcome.
Japan's USD/JPY pair fell 0.2% to 156.87, having earlier weakened by as much as 0.5% intraday. The currency's modest rebound followed a series of warnings from Japanese authorities indicating they may take action to defend the yen. Finance Minister Satsuki Katayama additionally said she was coordinating closely with U.S. Treasury officials on the possibility of a joint operation.
That intervention rhetoric provided short-term support after Prime Minister Sanae Takaichi secured a landslide victory in Sunday’s lower house elections. Her coalition now holds a supermajority in the lower house, which clears the way for planned fiscal measures. Markets are concerned that a more expansionary fiscal stance could weigh on the yen, a dynamic that has already contributed to a substantial selloff in Japanese government bonds earlier in the year.
Market strategists cautioned that official responses to further JPY weakness may intensify as USD/JPY inches toward higher levels. "FX markets remain wary that a more expansionary fiscal stance could weigh on the JPY. Still, as USDJPY approaches 160, market caution over potential official pushback - via rate checks or even direct intervention - will likely intensify," OCBC analysts said in a note.
Across Asia, the greenback's broader momentum cooled in early trade. The dollar index and dollar index futures slipped slightly, extending falls from recent highs near the 98-point area recorded last week. Traders said positioning in the dollar was muted as attention turned to a sequence of important U.S. economic releases due this week.
Market participants are focusing on U.S. nonfarm payrolls, scheduled for Wednesday, and the consumer price index, due on Friday. These two reports are expected to provide fresh signals on the likely path for U.S. interest rates, as investors assess the outlook under Kevin Warsh, President Donald Trump’s nominee for the Federal Reserve chair.
China-related FX moves remained notable. The onshore yuan's USD/CNY pair fell about 0.1%, lingering around levels last seen in mid-2023. The currency has firmed sharply in recent months amid active support from the People’s Bank of China, which set a series of relatively strong midpoints for the currency. Chinese consumer price index data due on Friday is expected to add additional context ahead of the Lunar New Year holidays.
Elsewhere in the region, the Australian dollar gained 0.2%, pushing AUD/USD back above the $0.70 mark as markets priced in the possibility of further rate increases by the Reserve Bank of Australia after a 25 basis point hike last week and a hawkish policy outlook. The Singapore dollar was largely unchanged versus the dollar, while South Korea’s USD/KRW pair rose roughly 0.2%.
The Indian rupee also moved slightly weaker, with USD/INR remaining above the 90-rupee level after the Reserve Bank of India left policy rates unchanged last week while revising up its inflation and growth forecasts. Across the region, subdued intraday moves reflected a broader wait-and-see stance as traders weigh upcoming macro prints from the U.S. and China.
Market watch
- Yen - modestly stronger after intervention warnings and coordination with U.S. Treasury officials.
- Dollar - cooled slightly as traders await U.S. payrolls and CPI data this week.
- China - yuan edged lower but remains supported by central bank midpoint settings ahead of CPI release.
Note: Information in this report is focused on observed market moves and official comments during the trading session described above and on scheduled economic releases noted for the coming days.