Asian FX was subdued, with the yen supported by intervention warnings after Takaichi’s win

Most Asian currencies traded in narrow ranges on Monday, while the yen edged higher after Japan’s finance ministry stepped up intervention warnings. However, the yen remained under pressure from concerns over heavy fiscal spending, which are expected to persist following Prime Minister Sanae Takaichi’s landslide election win. Elsewhere, Asian currencies stayed subdued after recent dollar strength, with markets now focused on key economic data due from the U.S. and China.

Yen buoyed by intervention warnings following Takaichi’s victory

The USD/JPY slipped 0.2% to 156.87 on Monday after earlier dropping as much as 0.5%, with the yen finding modest support from renewed intervention warnings by Japanese officials. While the currency remained broadly weak against the dollar, comments from Finance Minister Satsuki Katayama about close coordination with U.S. Treasury officials lent temporary relief.

However, the yen continues to face pressure following Prime Minister Sanae Takaichi’s decisive election victory, which gives her coalition a supermajority in the lower house and a clearer path to expansionary fiscal plans. Concerns over stretched government spending have weighed heavily on the yen and previously triggered a sharp sell-off in Japanese government bonds. Analysts at OCBC noted that while a looser fiscal stance could further pressure the yen, the risk of official pushback is likely to rise as USD/JPY nears the 160 level.

Dollar rebound eases as Asian FX trades quietly

The dollar eased slightly in Asian trade, extending its pullback from last week’s near-98 highs, as traders stayed cautious ahead of key U.S. data, including nonfarm payrolls on Wednesday and CPI inflation on Friday. The releases are expected to shape expectations for U.S. interest rates under potential Fed leadership changes.

Asian currencies were mostly rangebound. The Chinese yuan edged up, with USD/CNY down 0.1% and hovering near mid-2023 lows, supported by firm PBOC fixings ahead of Friday’s CPI data and the Lunar New Year. The Australian dollar rose 0.2% above $0.70 on bets of further RBA rate hikes after a hawkish move last week.

Elsewhere, the Singapore dollar was flat, the Korean won weakened slightly, and the Indian rupee stayed above 90 per dollar following the RBI’s steady policy stance and upgraded forecasts.

Sources: Ambar Warrick