Asian Currencies Mixed as Fed Holds Rates, Yen Gains on BOJ Outlook

Asian currencies traded mostly flat to lower on Thursday as the U.S. Federal Reserve kept interest rates unchanged and signaled little urgency for future rate cuts, pressuring regional units amid weak Chinese economic data. The U.S. dollar climbed to a two-month high overnight, though the dollar index eased slightly by 0.1% in early trading.

The Japanese yen outperformed after the Bank of Japan (BOJ) maintained its policy rate but hinted at future hikes if inflation and economic growth accelerate as projected. The USDJPY pair fell 0.5%, reflecting stronger yen demand. The BOJ also raised its consumer price index and GDP forecasts, noting that real interest rates remain low and additional hikes may follow. Political uncertainty in Japan, following the Liberal Democratic Party’s loss of majority, is expected to ease later this year, with analysts eyeing October for potential action.

China’s yuan held steady after July PMI data showed a deeper-than-expected contraction in manufacturing and non-manufacturing activity, largely due to extreme weather. Composite PMI barely grew, underscoring persistent headwinds in the Chinese economy despite improved trade ties with the U.S. Beijing has pledged further stimulus, though details remain scarce.

Other Asian currencies were subdued ahead of looming U.S. tariff decisions. The Indian rupee traded flat amid concerns over a proposed 25% U.S. tariff, while the South Korean won slipped slightly after a new trade agreement set tariffs at 15%. The Singapore dollar edged 0.2% lower, and the Australian dollar gained 0.3%, recovering from overnight losses.

Currency markets remain sensitive to global trade developments and central bank signals, with investors closely monitoring upcoming U.S. policy moves and Chinese economic support measures.