Asian currency markets showed little net change on Thursday, with the Japanese yen slipping toward levels not seen in one-and-a-half years, and the South Korean won relinquishing earlier advances following remarks from the U.S. Treasury Secretary. The U.S. Dollar Index remained stable near a one-month peak, reflecting cautious global sentiment.
The Japanese yen experienced downward pressure notwithstanding a modest overnight recovery, with USD/JPY retreating by 0.4% before edging up slightly by 0.1% during Thursday trade. Market participants have attributed the yen’s recent depreciation to growing speculation that Prime Minister Sanae Takaichi may call an unexpected parliamentary election as early as February. The prospect of a government led by Takaichi is perceived negatively for the yen, as she advocates for expansive fiscal spending, elevated public outlays, and the continuation of loose monetary policies.
Investors harbor concerns that such policy initiatives could restrict the Bank of Japan’s capacity to tighten its interest rate stance, thereby widening the yield gap between U.S. and Japanese government bonds and exerting downward pressure on the yen. Japanese authorities have cautioned against excessive exchange rate fluctuations, which has contributed to some stabilization; still, market confidence remains delicate.
In South Korea, the won experienced a setback after substantial recovery earlier. The USD/KRW exchange rate rose by 0.7% on Thursday, reversing part of the prior session’s 0.8% decline. This followed statements from U.S. Treasury Secretary Scott Bessent expressing support for the won and noting that its recent depreciation did not align with the country’s economic fundamentals. Bessent emphasized South Korea’s crucial role in the Asia-Pacific region, highlighting its robust performance in key sectors integral to trade relations with the United States.
Separately, the Bank of Korea maintained its benchmark interest rate at 2.5%, signaling a halt to its easing trajectory — a move that adds context to the currency’s recent volatility.
Across other Asian currencies, trading was relatively subdued. The Chinese yuan’s USD/CNY pair declined slightly by 0.1%, while the offshore USD/CNH remained steady. The Singapore dollar saw a minor uptick, and the Indian rupee exhibited little change. The Australian dollar also remained largely unchanged throughout the session.
Meanwhile, Asian investors appeared cautious amid remarks from U.S. President Donald Trump denying intentions to dismiss Federal Reserve Chair Jerome Powell despite ongoing investigations. This assertion provided some reassurance regarding the Fed’s independence, though uncertainties about U.S. monetary policy direction continue to temper market appetite.
The overall currency market trend reflected sensitivity to potential shifts in fiscal and monetary policies within key economies, underscoring the impact of political developments on currency valuations and broader market dynamics.