Asian foreign exchange markets exhibited cautious trading on Thursday, with most regional currencies hovering close to previous levels. The Japanese yen in particular lingered near 18-month lows against the U.S. dollar, amid growing concerns about an early election and its potential economic implications. Meanwhile, the South Korean won gave up recent advances that had been buoyed by verbal endorsements from U.S. Treasury Secretary Scott Bessent.
The broader U.S. Dollar Index remained largely unchanged, maintaining proximity to a one-month peak as of early Thursday trading (05:21 GMT), including steady futures markets.
Japan’s Yen Weakened Amid Snap Election Speculation
Overnight, the yen briefly strengthened, causing the USD/JPY currency pair to decline by 0.4%. However, it rebounded slightly on Thursday with a 0.1% increase, sustaining near its highest level in approximately eighteen months.
The yen’s recent depreciation has been linked to expectations that Prime Minister Sanae Takaichi may call for an early general election in February. Market participants have expressed apprehension about the prospect of a Takaichi-led cabinet, viewing it as detrimental to the currency.
Concerns center on her preference for expansionary fiscal policies including increased government expenditures and the continuation of accommodative monetary strategies. Investors are wary that such policy directions could hinder the Bank of Japan’s efforts to normalize monetary policy, potentially expanding the interest rate differential with the U.S. and thereby exerting downward pressure on the yen.
Japanese authorities have cautioned against excessive fluctuations in the currency market, efforts that have helped prevent further sharp falloffs for the yen. Nevertheless, overall sentiment remains fragile amid ongoing political and economic uncertainties.
South Korean Won Pulls Back After U.S. Treasury Support
In South Korea, the won saw its eighth decline in nine trading sessions, reversing part of the gain it had achieved following public remarks by U.S. Treasury Secretary Scott Bessent. The USD/KRW exchange rate rose by 0.7% on Thursday, offsetting a 0.8% drop the day prior when Bessent highlighted that the won’s recent depreciation seemed inconsistent with South Korea’s strong economic fundamentals.
Bessent emphasized South Korea’s significant economic achievements, particularly in sectors that underpin American industries, underscoring the strategic partnership between the countries in Asia.
Domestic monetary policy developments also played a role. The Bank of Korea left its benchmark interest rate steady at 2.5% on Thursday and suggested that its current cycle of easing monetary measures was nearing completion.
Additional Currency Movements and Policy Context
Elsewhere in the region, major Asian currencies experienced subdued activity amid investor focus on political signals from Washington. Comments by U.S. President Donald Trump, who reassured that he did not intend to dismiss Federal Reserve Chair Jerome Powell despite an ongoing criminal investigation, helped alleviate concerns about Fed independence. However, traders remained vigilant regarding potential policy shifts and their impacts on interest rate projections.
On the Chinese front, the yuan’s onshore variant (USD/CNY) saw a slight 0.1% decline, while the offshore version (USD/CNH) was mostly stable. Other currencies such as Singapore’s dollar (USD/SGD) edged up modestly by 0.1%, and India’s rupee (USD/INR) held steady. The Australian dollar (AUD/USD) did not exhibit significant movement on Thursday.