Asian forex flat as China’s lending rate unchanged

Asian currencies remained largely quashed by risk aversion

Most Asian currencies kept to a tight range on Tuesday. Markets showed little reaction to China leaving a key lending rate unchanged as expected, while the yen was flat after Prime Minister Sanae Takaichi announced a snap election in early-February.

The yen’s USD/JPY pair dropped 0.1% on Tuesday, but remained close to recent highs amid few positive signals for the currency.

Prime Minister Takaichi said on Monday that she will dissolve Japan’s lower house this week and hold a snap election on February 8.

With Takaichi seeing strong approval ratings, a snap election will likely further enable the prime minister’s plans for more fiscal stimulus.

But markets questioned just how much headroom Takaichi has for more fiscal spending, with Japanese government bonds seeing an extended selldown. This also weighed on the yen.

Takaichi’s announcement also came before a Bank of Japan meeting on Friday, with investors split over whether the central bank has enough impetus to hike interest rates further.

The central bank had raised interest rates in its final meeting in 2025, and had signalled that continued increases in inflation and wages would spur more hikes. But the BOJ may also hold off on further hikes until it has more clarity on Japan’s springtime wage negotiations, which take place in March-April.

Other Asian currencies remained largely quashed by risk aversion.

The yuan’s USD/CNY pair declined slightly, showing little reaction to the People’s Bank leaving its loan prime rate unchanged. Still, the yuan remained close to its strongest levels in 2-½ years following several strong midpoint fixes from the PBOC.

The Taiwan dollar’s USD/TWD pair gained 0.3%, while the Australian dollar’s AUD/USD pair rose 0.3%, with the latter benefiting from some weakness in the dollar.

The won’s USD/KRW pair added 0.2%, while the Singapore dollar’s USD/SGD pair advanced 0.1%.