Asian currency markets experienced minimal change on Thursday, with the Japanese yen maintaining levels near its lowest in 18 months due to concerns over an impending snap election in Japan. Meanwhile, the South Korean won retreated from recent gains sparked by verbal endorsements from U.S. Treasury Secretary Scott Bessent.
The US Dollar Index was mostly steady, sustaining its position near one-month highs. Similarly, US Dollar Index Futures traded without significant deviation as of 05:21 GMT.
Yen Under Pressure Amid Election Speculation
The Japanese yen showed some volatility overnight. The USD/JPY currency pair decreased by 0.4%, indicating a slight appreciation of the yen. However, on Thursday, the pair edged up 0.1%, keeping close to its one-and-a-half-year peak.
In recent sessions, the yen has experienced pronounced depreciation amid speculation that Prime Minister Sanae Takaichi may call an early election in February. Market participants have reacted negatively to the possibility of a Takaichi administration, citing her advocacy for expansionary fiscal measures, increased government spending, and ongoing accommodative monetary policy.
Such policies are perceived as limiting the Bank of Japan’s capacity to tighten monetary policy, potentially widening interest rate differentials with the United States, thereby exerting downward pressure on the yen. Japanese authorities have issued warnings against excessive fluctuations in the currency, which has helped stabilize the yen, but overall market sentiment remains delicate.
South Korean Won Reverses Upward Momentum After Bessent’s Remarks
The South Korean won continued a downward trend, losing value in eight out of the past nine trading sessions. On Thursday, the USD/KRW pair rose 0.7%, following a 0.8% decline in the previous session after U.S. Treasury Secretary Scott Bessent expressed rare verbal support for the won. Bessent described the won’s recent depreciation as not aligned with the country's strong economic fundamentals.
“Korea’s impressive economic performance, especially in key industries that support America’s economy, make it a critical partner for us in Asia,” Bessent stated on social media.
In addition, the Bank of Korea maintained its benchmark interest rate at 2.5% on Thursday and indicated that the current easing cycle is likely concluded.
Other Asian Currencies Remain Steady Amid U.S. Political and Economic Signals
Elsewhere in Asia, currency movements were subdued as investors processed remarks from U.S. President Donald Trump, who informed Reuters that he has no intention of removing Federal Reserve Chair Jerome Powell, despite an ongoing criminal investigation. While this helped alleviate concerns regarding the Fed’s independence, market participants remained cautious about Washington’s policy uncertainty and its potential effects on interest rate expectations.
In China, the yuan’s onshore rate versus the U.S. dollar (USD/CNY) slightly decreased by 0.1%, while the offshore yuan (USD/CNH) remained largely unchanged. The Singapore dollar (USD/SGD) observed a 0.1% gain, whereas the Indian rupee (USD/INR) showed little movement. The Australian dollar (AUD/USD) also stayed largely flat on the day.