Currencies broadly weakened as a rising dollar encouraged investors to scale back exposure to Asian currencies

The dollar firmed against most Asian currencies on Monday as renewed Middle East tensions boosted demand for the dollar.

The yen remained under close watch after Friday’s sharp rebound followed comments from Japanese Finance Minister Satsuki Katayama that she wanted to encourage public pension funds, including the Government Pension Investment Fund (GPIF), to invest more in Japanese financial assets.

The remarks sparked speculation that one of the world’s largest institutional investors could gradually shift part of its overseas holdings back into domestic assets, providing a structural source of support for the currency.

The USD/JPY pair rebounded 0.4% to nearly 162.3, recovering part of Friday’s decline but remaining well below last week’s high around 162.7, when fears of renewed intervention weighed on the pair.

Tony Sycamore, market analyst at IG, said Katayama’s comments could ultimately prove to be a pivotal moment for the yen if they translate into changes in pension fund allocations.

He estimates such a move could generate around JPY12 trillion of yen buying, while more aggressive portfolio rebalancing could see flows reach JPY30 trillion, providing meaningful support for a currency that has come under sustained pressure over the past year.

Other currencies broadly weakened as a rising dollar encouraged investors to scale back exposure to Asian currencies.

The USD/KRW climbed 0.6% to nearly 1,507, extending gains after KOSPI briefly triggered a circuit breaker following an intraday decline of more than 8%. Continued foreign selling of semiconductor stocks, including SK Hynix and Samsung Electronics, added pressure on the won.

The Australian dollar also weakened, with USD/AUD rising nearly 0.4%. Yuan relatively held steady, with USD/CNY and offshore USD/CNH edging only modestly higher as investors awaited a busy week of domestic economic releases.

Markets await China’s June trade data on Tuesday, followed by second-quarter GDP, retail sales and industrial production later in the week. Singapore will also release advance second-quarter GDP estimates, with investors on guard for Bank of Korea’s policy decision.