Asian Currencies Rise as Dollar Weakens; Yen Holds Steady Amid Japan Intervention Watch

Most Asian currencies edged higher on Friday after the U.S. dollar retreated from a 13-month high following weaker-than-expected U.S. nonfarm payrolls data, raising fresh questions about the Federal Reserve’s interest rate outlook. However, gains across regional foreign exchange markets remained modest as investors stayed cautious over elevated U.S. interest rates, geopolitical uncertainty, and thin trading ahead of the U.S. market holiday.

The Japanese yen remained in focus, with the USD/JPY pair hovering near 161.16 after a sharp overnight decline. The yen recovered from its weakest level in four decades as Japanese officials intensified warnings about potential currency market intervention to curb excessive speculation. Reports suggested Tokyo has shifted toward a more targeted strategy aimed at squeezing speculative positions rather than signaling intervention well in advance.

Market participants are also watching for possible action during the U.S. holiday, a period when Japan has previously stepped into currency markets. Despite the recent rebound, the yen remains one of Asia’s weakest-performing currencies this year due to higher oil prices, the wide interest rate gap between Japan and the United States, and ongoing concerns over Japan’s fiscal outlook.

Analysts at OCBC noted that while intervention risks could trigger short-term volatility and sudden corrections in the yen, a lasting reversal in the USD/JPY exchange rate would likely require a meaningful shift in broader macroeconomic fundamentals rather than intervention alone.

The U.S. dollar also remained under pressure after June’s softer payrolls report reduced expectations that the Federal Reserve would continue raising interest rates this year. The dollar index extended overnight losses in Asian trading, although expectations for a hawkish monetary policy continued to provide underlying support. Federal Reserve Chair Kevin Warsh reiterated this week that the central bank remains committed to achieving its 2% inflation target despite persistent inflation pressures.

A weaker dollar helped lift several regional currencies. The Australian dollar gained nearly 0.3% against the greenback, while the Chinese yuan strengthened slightly, pushing USD/CNY down about 0.1%. The Indian rupee also posted modest gains, while the Singapore dollar traded largely unchanged. Meanwhile, the Taiwan dollar advanced roughly 0.2% as investors cautiously returned to regional currencies despite lingering concerns over U.S.-Iran negotiations and global market uncertainty.