Tuesday’s trading session saw most Asian currencies confined within narrow trading ranges as market participants showed caution amidst ongoing geopolitical developments. The U.S. dollar experienced a slight retreat, impacted by escalating concerns over tariff impositions linked to Greenland, announced by U.S. President Donald Trump. These moves led investors to approach American assets cautiously.
Meanwhile, regional markets exhibited a muted response to China’s decision to hold its key lending rate steady as widely anticipated. The Japanese yen remained mostly unchanged, even as Prime Minister Sanae Takaichi declared plans for a snap election scheduled for early February.
A U.S. market closure on Monday resulted in fewer overnight market signals, contributing to risk-averse behavior across Asian trading floors. The weekend announcement by President Trump to levy tariffs against European interests related to Greenland generated unease among investors.
Japanese Yen Faces Mixed Influences
The USD/JPY pair moved down marginally by 0.1% on Tuesday, yet persisted near recent highs, reflecting overall subdued investor enthusiasm. Following Prime Minister Takaichi’s Monday announcement to dissolve Japan’s lower house and call a snap election for February 8, market attention has gravitated towards possible fiscal stimulus initiatives from the government. Takaichi’s favorable approval ratings suggest she may secure increased mandate to advance such economic measures.
Despite this, concerns linger regarding the scope for intensified fiscal spending, as Japanese government bonds continue to experience selling pressure. This dynamic has exerted downward pressure on the yen. Investors are also awaiting the Bank of Japan’s upcoming meeting on Friday, anticipating clarity on the central bank’s stance over interest rate adjustments. The Bank of Japan previously raised rates during its last meeting in 2025 and indicated that rising inflation and wage growth could justify further hikes. Nevertheless, the central bank may opt to delay additional tightening until after Japan’s spring wage negotiations, set for March and April provide more economic clarity.
Dollar Faces Downward Pressure from Greenland Dispute
The dollar index and its futures contracts declined by approximately 0.1% in Asian trading sessions. This dip reflects investor caution surrounding U.S. assets amid the ongoing dispute triggered by President Trump's firm stance on acquiring Greenland. European governments have largely opposed this move and maintain that Greenland should remain a territory of the Kingdom of Denmark. Trump reiterated his demands on Monday and suggested military options have not been dismissed.
With the World Economic Forum in Davos approaching, the U.S. president is expected to attend, where potential discussions with European leaders over Greenland could take place.
Asian Currencies Reflect Risk Aversion
Risk aversion linked to the Greenland situation kept most Asian currencies relatively subdued. The Chinese yuan slipped slightly against the dollar despite steady lending rates, maintaining proximity to two-and-a-half-year highs after several robust midpoint fixes by the People’s Bank of China. The Taiwan dollar rose by 0.3%, as did the Australian dollar which benefited from dollar softness, appreciating by 0.3% versus the U.S. dollar.
The South Korean won recorded a 0.2% increase against the dollar, while the Singapore dollar strengthened marginally by 0.1%. The Indian rupee appreciated by 0.1%, nearing the psychologically important level of 91 rupees per dollar amid rising concerns about the robustness of India’s economic outlook.