Asian currencies remained largely stable on Wednesday after the release of US inflation data that upheld the anticipated trajectory of Federal Reserve rate reductions. Investors weighed the implications of potential early elections in Japan against the backdrop of strong trade performance in China.
The US Dollar Index edged higher by roughly 0.1% during Asian trading hours, following a modest uptick overnight. Futures linked to the dollar mirrored this increase, rising by 0.1% as of 05:22 GMT.
Data from Wednesday's US Consumer Price Index report indicated inflation broadly aligned with market forecasts, reinforcing the perception that inflationary pressures remain well managed. This outcome solidified investor expectations for the Federal Reserve to implement at least two rate cuts in 2026.
Yen Drops to 18-Month Low on Snap Election Prospects
The Japanese yen depreciated to its lowest level in a year and a half against the US dollar, with USD/JPY climbing 0.2% to 159.45 yen, marking its highest point since June 2024. Reports emerged that Prime Minister Sanae Takaichi intends to dissolve parliament imminently, with February 8 being a possible date for a snap lower-house election.
Investors are focusing on Takaichi's promises of expansive fiscal measures, including substantial stimulus aimed at fostering growth and combating deflation. Such policies may exert additional pressure on the yen by augmenting government debt and delaying the Bank of Japan's monetary tightening. This anticipated fiscal stimulus, referred to as the “Takaichi trade,” has contributed to recent weakness in the yen.
China's Trade Data Highlights Economic Strength in 2025
Meanwhile, China reported a strong trade surplus for December, with export figures surpassing predictions and imports increasing at a solid rate. This dynamic suggests ongoing robust external demand alongside signs of strengthening domestic consumption.
For the entirety of 2025, China achieved a record trade surplus of $1.25 trillion. While export disruptions to the United States persisted, they were offset by sustained demand from other global markets.
The onshore yuan pairing against the US dollar (USD/CNY) remained largely unchanged, while the offshore yuan rate (USD/CNH) registered a slight 0.1% increase.
Other Currency Movements
Elsewhere in the region, the South Korean won (USD/KRW) edged up by 0.2%, whereas the Singapore dollar's exchange rate versus the US dollar (USD/SGD) remained flat. The Indian rupee strengthened, with USD/INR falling by 0.2%. The Australian dollar appreciated as well, with AUD/USD rising 0.2%.