Asia FX steady after soft US CPI fuels Fed cut bets; BOJ hikes rates as expected
Investing.com-- Most Asian currencies were largely unchanged on Friday as investors assessed the outlook for U.S. interest rate cuts following benign inflation data, while the Bank of Japan delivered a widely expected policy tightening.
The US Dollar Index, which measures the greenback against a basket of major currencies, rose 0.1%. US Dollar Index Futures also traded 0.1% higher as of 04:04 GMT.
Unlock exclusive forex market insights, analyst resarch with an InvestingPro subscription - get 55% off today
The Bank of Japan raised its short-term policy rate to 0.75%, marking another step away from years of ultra-loose monetary policy.
The BOJ judged that price growth and wage dynamics were becoming more durable.
The central bank said the decision reflected steady progress toward achieving its inflation target, supported by improving corporate pricing behaviour and solid wage settlements. Governor Kazuo Ueda is scheduled to hold a news conference later in the day to explain the decision and provide guidance on the pace of future tightening.
The yen’s USD/JPY held largely steady, up 0.2% at 155.92 yen, as traders weighed uncertainty over how quickly the BOJ will proceed with further hikes. Markets had largely priced in the move, limiting its impact on broader regional currencies.
In other news, data on Friday showed that Japanese consumer price index inflation remained steady as expected in November, with underlying inflation cooling slightly but remaining well above the Bank of Japan’s annual target.
Across Asia, foreign exchange markets remained subdued as investors turned their focus to the U.S. interest rate outlook.
The latest U.S. consumer price data showed inflation cooling more than expected in November, with the annual headline rate easing to 2.7%, reinforcing expectations that the Federal Reserve could begin cutting rates next year.
However, caution persisted after U.S. officials flagged potential distortions in the data due to disruptions in government operations, prompting investors to treat the figures with some skepticism.
"There is some scepticism due to the scale of the downside ’miss’ relative to analyst expectations and the impact of the government shutdown, but it explains why Fed Chair Powell sounded so relaxed last week," ING analysts said in a note.
"This leaves the door wide open for earlier, swifter 2026 rate cuts," they added.
Among regional currencies, the South Korean won’s USD/KRW gained 0.3%, while the Singapore dollar’s USD/SGD edged up 0.2%.
The Indian rupee’s USD/INR pair was largely steady.
In China, the yuan’s onshore pair USD/CNY was little changed, while the offshore pair USD/CNH ticked 0.1% higher.
The Australian dollar’s AUD/USD pair edged down 0.1%.
