Most Asian currencies retreated on Friday as market participants parsed contrasting signals about interest-rate paths across the region. The Australian dollar stood out as one of the few gainers, poised for a strong monthly performance, while the Japanese yen continued to give back ground following weak inflation data for Tokyo.
The dollar index and corresponding futures fell roughly 0.1% in Asian trading, although the greenback has accumulated about a 0.7% increase for February. That monthly rise reflects a mix of safe-haven demand and lingering uncertainty over future policy moves by major central banks.
Japanese yen: softness after Tokyo CPI
The yen traded with subdued volatility on Friday, with the USD/JPY pair slipping about 0.2% on the day but remaining set to log roughly a 0.7% rise over the month. The currency’s weakness was reinforced by growing skepticism about the timing of potential rate tightening from the Bank of Japan.
That skepticism was heightened by the recent Tokyo consumer price index print for February, which showed core inflation dipping below the BOJ’s 2% annual goal for the first time in nearly four years. As a regional bellwether, the Tokyo reading suggested less immediate pressure for the BOJ to press ahead with further hikes, a dynamic that tends to weigh on the yen when other central banks signal tighter policy.
Political developments also factored into dollar-yen moves. Markets had already braced for the possible fiscal implications of Prime Minister Sanae Takaichi’s proposed stimulus and tax-cut agenda after her ruling coalition secured a supermajority in the lower house of parliament. That perceived path toward expansive fiscal measures contributed to expectations that yen weakness would persist during February.
Chinese yuan eases after PBOC scrapes FX reserve requirement
The USD/CNY pair moved higher by about 0.2% on Friday following an adjustment by the People’s Bank of China. The central bank eliminated a key foreign-exchange risk reserve ratio for certain forward contracts, a step that effectively lowers the cost of buying dollars within China.
The move followed a broad rally of the yuan versus the dollar in recent months, a rally driven in part by exporters reducing their dollar holdings amid a healthy trade surplus with the United States. Sharp appreciation in the yuan can weaken exporters’ returns on overseas sales, and Friday’s change appears aimed at tempering excessive strengthening in the currency.
Even with the easing, the yuan remained near three-year highs reached earlier in the week, underscoring how policymakers are balancing market forces and export competitiveness.
Australian dollar posts strong monthly performance
The AUD/USD pair rose about 0.25% on Friday and was among Asia’s top performers for February. The Australian dollar was on track to climb roughly 2.3% for the month, driven largely by an increasingly hawkish outlook for the Reserve Bank of Australia.
The RBA lifted rates by 25 basis points at the start of the month and signaled willingness to raise further if inflation did not moderate. A hotter-than-expected consumer price index print for January earlier in the week reinforced expectations for additional tightening by the central bank, lending support to the currency.
Other Asian currencies
Elsewhere in the region, most Asian currencies weakened on Friday. The South Korean won saw the USD/KRW pair tick up slightly on the day but remained down about 1.3% for February. The Indian rupee steadied after the USD/INR moved back above the 91 rupee level, though it was still weaker by 0.8% for the month after earlier strength tied to a trade deal between the United States and India. The Singapore dollar was unchanged on the session and has fallen about 0.7% this month.
In sum, markets are navigating a patchwork of monetary expectations across Asia. Central-bank communications, domestic inflation readings, and policy steps such as the PBOC’s change to forward-contract reserve requirements are all shaping currency moves as the month closes.