On Thursday, most Asian currencies remained closely aligned with flat trading ranges as the Japanese yen approached its lowest valuation in 18 months. This depreciation stems from speculation surrounding a potential snap election in Japan. Recent comments from Prime Minister Sanae Takaichi have introduced market uncertainty, given her inclination towards expansionary fiscal policies, increased government spending, and sustaining accommodative monetary stances. These policies suggest a continued delay in normalization of the Bank of Japan's monetary policy, potentially widening the yield gap against the U.S. dollar and exerting downward pressure on the yen.
Overnight trading saw the USD/JPY rate decline by 0.4%, marking a slight respite, but earlier gains kept the pair near a one-and-a-half-year high, signaling persistent overall yen weakness. Meanwhile, Japanese authorities issued cautions against excessive currency fluctuations, which contributed to some stabilization despite ongoing fragile sentiment.
In South Korea, the Korean won reversed a sharp upward move that had been fueled by the supportive stance of U.S. Treasury Secretary Scott Bessent. The dollar-to-won exchange rate climbed 0.7% following an 0.8% drop in the previous session when Bessent publicly stated that the won’s depreciation was inconsistent with South Korea’s strong economic fundamentals. Highlighting the country's vital role, Bessent emphasized South Korea’s significant contributions to key industries supporting the American economy, acknowledging it as a critical partner in Asia.
Additionally, the Bank of Korea maintained its benchmark interest rate at 2.5%, signaling an end to its current phase of easing monetary policy, which plays a crucial role in financial market expectations and currency valuations.
Elsewhere in Asia, currency movements were subdued amid mixed signals from Washington. U.S. President Donald Trump reassured markets by denying plans to remove Federal Reserve Chairman Jerome Powell despite an ongoing criminal probe. This announcement helped ease concerns about potential interference in Federal Reserve independence, though caution remained due to persistent policy uncertainties in the U.S.
Regarding major regional currencies, the onshore Chinese yuan experienced a marginal decline against the dollar, while the offshore yuan remained largely unchanged. The Singapore dollar advanced slightly, and the Indian rupee stabilized after modest fluctuations. Meanwhile, the Australian dollar showed little change in value against the U.S. dollar as markets adjusted to these developments.