Asian currencies traded mostly cautiously on Wednesday as the Japanese yen weakened to a one-week low and the U.S. dollar remained near multi-week highs ahead of key Federal Reserve and Bank of Japan policy decisions.
The U.S. Dollar Index hovered around 99.63 after strengthening alongside Treasury yields in recent sessions. USD/JPY rose about 0.2%, with the yen trading near 155.34 per dollar after touching 155.43, moving further from its recent seven-month high of 152.89.
The New Zealand dollar was among the weakest regional currencies, with NZD/USD falling 0.7% to $0.5742. The Australian dollar traded around $0.7128, while the euro and British pound were largely unchanged against the greenback.
Dollar demand has strengthened as investors increasingly expect the Federal Reserve to resume interest-rate hikes. Higher energy prices linked to the Middle East conflict have added to inflation concerns and pushed U.S. Treasury yields higher. ANZ analysts expect the Fed to tighten at sequential meetings despite the October policy meeting falling close to the U.S. midterm elections.
Meanwhile, expectations for tighter monetary policy in Japan remain firm. Markets are pricing roughly an 80% chance that the BOJ will raise interest rates on Friday, with two 25-basis-point increases expected by the end of January. The yen has also benefited in recent months from coordinated U.S.-Japan intervention and capital repatriation by Japanese investors.
Elsewhere in Asia, USD/KRW gained 0.2% to 1,364.73, although the South Korean won has strengthened more than 15% since late June, supported by repatriated funds and profits from domestic chipmakers.
The Chinese yuan remained resilient, with USD/CNH near 6.7104 and USD/CNY around 6.7098. The yuan’s rally has slowed near the 6.71 level but has largely held despite China’s relatively low interest rates.
Other Asian currencies were mixed, with USD/SGD rising 0.1%, USD/INR slipping 0.1%, USD/MYR falling to 4.0446 and USD/IDR edging higher. With the Fed decision due Wednesday and the BOJ meeting Friday, USD/JPY and central bank policy expectations remain key drivers for Asian currency markets.
