The Japanese yen continued to oscillate near a seven-month high against the US dollar, with its powerful rally lifting Asian currencies across the board. The Taiwan dollar closed at NT$31.505 against the greenback on the 9th, up 3 cents, marking its fourth consecutive session of gains and its strongest level in more than three months since June 6. The RMB briefly touched 6.7 per US dollar intraday, a more than three-and-a-half-year high, while the South Korean won also hovered near a two-year peak. Led by the yen’s surge, Asian currency markets displayed a rare synchronized strength.
According to Taiwan’s central bank statistics, as of 4 p.m. on the 9th, the US Dollar Index had fallen 0.24%, with major Asian currencies all appreciating. The South Korean won led the pack with a 0.63% surge, followed by the Japanese yen at 0.46%, the Singapore dollar at 0.13%, the Taiwan dollar at 0.1%, and the RMB edging up 0.05%. Foreign exchange banking executives noted that the yen remains the focal point of recent Asian currency movements, currently oscillating around the 152–153 range against the dollar, holding at seven-month high levels.
Behind the Yen’s Strength: Rate Hike Expectations and Carry Trade Unwinding
The yen’s latest rally has been swift and sharp. FX analysts explained that the rapid appreciation has not only triggered stop-loss short covering among yen bears but has also begun to disrupt the traditional carry trade of “borrowing yen to buy dollars and other high-yield assets.” As yen appreciation risk escalates, investors have been steadily reducing yen-funded carry positions, and the resulting unwinding flows have further propelled the yen higher while diluting the rush into dollars. This has kept the greenback from strengthening meaningfully even amid rising oil prices and inflation concerns.
Japan’s economic fundamentals have also provided support for the yen. Japan’s second-quarter GDP was revised upward, and with real wage growth turning positive, market expectations for a Bank of Japan rate hike have clearly intensified. The market broadly anticipates that the BOJ will raise rates by 25 basis points to 1.25% at its September 17–18 meeting, and may accelerate the pace of subsequent hikes from roughly once every six months to once per quarter. Under these expectations, investors have continued to cover yen short positions and scale back carry trades. Additionally, US Treasury Secretary Scott Bessent’s expression of support for a stronger yen has further reinforced yen buying.
In Tokyo trading on the morning of the 10th, the US Dollar Index slipped 0.03% to 98.75, extending its soft tone. The yen traded at ¥153.45 per dollar, up 0.13%; the euro stood at $1.1636, up 0.09%, reaching a 12-day high; and the British pound traded at $1.3551, up 0.07%. Brent crude futures broke above $100 per barrel, intensifying imported inflation pressures on the UK and prompting traders to add to Bank of England rate hike bets, lending support to sterling. The market widely expects the European Central Bank to raise rates on Thursday, and with energy prices climbing, the likelihood of further policy tightening has increased, driving the euro higher.
Taiwan Dollar Benefits from Foreign Capital Inflows; Short-Term Gains Already Substantial
The Taiwan dollar has recently benefited from hot money inflows from foreign investors and the broader strength in major Asian currencies, rebounding from around the NT$31.7 level. Over the past two trading sessions, the currency has traded in the NT$31.4 range intraday, reaching a high of NT$31.455 on the 9th. Combined trading volume in the Taipei and Yuan Tai foreign exchange markets narrowed to $2.0295 billion (approximately NT$64 billion).
Taiwan’s stock market surged more than 440 points in early trading on the 9th, briefly turned negative intraday, and swung nearly 490 points from high to low before closing up 77.58 points at 47,183.36. Foreign investors posted net buying for a fourth consecutive day, adding another NT$20.924 billion (approximately $664.9 million). However, with short-term gains already substantial and the market consolidating after breaking above the 47,000 level, the pace of foreign capital inflows has moderated somewhat. FX banking executives expect the Taiwan dollar to consolidate around the NT$31.5 level in the near term.
Foreign exchange traders noted that market views on the Federal Reserve’s September policy direction remain divided, with investors awaiting key inflation data due later this week for clues. There has been a noticeable shift toward a wait-and-see sentiment in financial markets recently, with trading volumes in both equities and currencies contracting. Traders anticipate that clearer market direction will only emerge after major central bank policy decisions are announced next week.
Super Central Bank Week Looms; Markets Focus on Inflation Data
Tensions in the Middle East persist, with US-Iran hostilities ongoing and international oil prices breaking above $100 per barrel. Elevated energy prices are putting pressure on upcoming major central bank rate decisions. Markets will focus on this week’s US inflation data, including the Producer Price Index (PPI) due Thursday and the Consumer Price Index (CPI) on Friday, to gauge whether rising oil prices are further fueling inflationary pressures.
Next week brings a “super central bank week,” with the Federal Reserve, Bank of Japan, and Taiwan’s central bank all set to announce their latest policy decisions. Interest rate futures markets still price in less than a 60% probability of a Fed rate hike in September. FX banking executives noted that if US CPI comes in above market expectations, it could reignite expectations of Fed tightening and trigger a dollar rebound, potentially capping the upside for Asian currencies and the Taiwan dollar. Conversely, if inflation data proves moderate, the dollar may remain soft, allowing the yen and Taiwan dollar to extend their rallies.
If BOJ rate hike expectations continue to build, the yen could potentially challenge the 150 level, providing further encouragement for other Asian currencies. However, FX banking executives cautioned that whether the Taiwan dollar can break through NT$31.5 and potentially challenge NT$31.2 will hinge on foreign investor flows. Overall, until major central bank policies become clearer, Asian currency markets are expected to maintain a high-level consolidation pattern in the near term.
