Investing.com – Most Asian currencies fell on Thursday, weighed down by a stronger dollar as hawkish comments from the Federal Reserve reinforced bets on a slower pace of rate cuts in 2025.
The yen was an exception, benefiting from growing speculation about a Bank of Japan interest rate hike after November wage data came in stronger than expected.
But the yen, like most Asian currencies, has suffered sharp losses in recent sessions amid pressure from a stronger dollar and rising U.S. Treasury yields.
Weak inflation data from China also weighed on sentiment as deflation persisted in Asia’s largest economy despite Beijing’s recent stimulus efforts.
Asian trading stabilized after returning to more than two-year highs on Wednesday.
The Fed’s December meeting showed policymakers increasingly favoring a slower pace of rate cuts in 2025. Fed members also expressed some concerns about President-elect Donald Trump’s expansionary policies, which could potentially fuel inflation.
Yen rises as wage data boosts bets for January rate hike
The Japanese yen strengthened on Thursday, with the pair falling nearly 0.3% and briefly dipping below 158 yen.
November data was stronger than expected as wages in Japan continued to rise, benefiting from sharp increases achieved earlier in 2024.
The data reinforced the view of a virtuous cycle in Japan’s economy: Rising wages would support inflation and give the Bank of Japan more incentive to raise interest rates sooner rather than later.
“We believe the latest data, including resilient consumption, inflation above 2% for a significant period and continued healthy wage growth, support the January increase,” ING analysts said in a note.
Bank of Japan Governor Kazuo Ueda previously signaled that the bank would try to hold talks in March before deciding on a rate hike. But ING analysts said there was a possibility of a January rate hike, although that would still be very dangerous.
Chinese yuan weakens amid mild inflation
The Chinese yuan weakened on Thursday, remaining near its lowest level in 17 years. The yuan rose 0.2% and remained well above the psychologically important level of 7.3.
inflation barely rose in December, while inflation fell for the 27th month in a row.
The report showed little improvement in China’s long-term disinflationary trend and signaled that Beijing may have to do more to support economic growth.
Asian currencies generally weakened on Thursday. The Australian dollar fell 0.1% as data showed gains were weaker than expected in November despite support from the Black Friday trading event.
But Australia’s growth was stronger than expected in November, supported by strong commodity exports.
The South Korean won fell 0.1% as efforts continued to arrest President Yoon Seok-yeol over a failed attempt to impose martial law.
The Singapore dollar pair remained unchanged while the Indian rupee pair hovered just below the Rs 86 level.