Asian Forex: Renminbi hits 34-month high; Yen rebounds on expectations of Bank of Japan rate hike

Investing.com - On Thursday, amid ongoing uncertainty in U.S. trade policies, most Asian currencies remained largely stable, with the Chinese yuan and Japanese yen performing notably due to domestic factors.

The U.S. dollar index fell 0.1% during Asian trading hours. As of 00:22 Eastern Time (05:22 GMT), U.S. dollar futures also declined by 0.1%.

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Yuan hits 34-month high on policy support expectations

Ahead of China’s National People’s Congress annual session, market expectations of policy support pushed the onshore USD/CNY exchange rate down 0.5%, reaching a 34-month low of 6.834 yuan.

The offshore exchange rate also weakened, with USD/CNH touching its lowest level since mid-April 2023.

Investors are preparing for potential growth targets and fiscal stimulus signals that may be announced at the meeting, which is widely seen as setting the tone for Beijing’s economic priorities this year.

Due to persistent concerns over U.S. trade tariffs, broader regional currencies remained subdued. The 10% global tariffs implemented earlier this week by U.S. President Donald Trump have taken effect, with the government working to raise the rate to 15%.

After the Bank of Korea kept interest rates steady at 2.5% as expected earlier today, the Korean won USD/KRW exchange rate remained largely unchanged.

The Singapore dollar USD/SGD exchange rate fell 0.1%, while the Indian rupee USD/INR rose 0.1%.

The Australian dollar AUD/USD increased by 0.2%.

Bank of Japan expected to raise interest rates despite government pressure

Bank of Japan Governor Kazuo Ueda told Yomiuri Shimbun that policymakers will closely monitor upcoming data at the March and April meetings, and if inflation and wage trends remain stable, a rate hike cannot be ruled out. Following this, the yen USD/JPY fell 0.4%.

These comments reinforce expectations that Japan may continue its gradual normalization path.

On Wednesday, media reports indicated that Prime Minister Fumio Kishida was cautious about further rate hikes and nominated two dovish candidates to the Bank of Japan board, leading to a weakening of the yen.

ING analysts stated in a report: “With the appointment of two new members, monetary policy discussions will incorporate a broader range of views, but we do not expect any single perspective to dominate decision-making.”

They added: “We still believe that after confirming that spring wage negotiations will ensure wage increases of over 5% and after the April inflation data is released, a rate hike is more likely in June rather than April.”

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