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Asia forex muted ahead of economic cues

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Concerns over China also kept sentiment towards Asian markets largely muted, after the PBC held its benchmark loan prime rate at record lows earlier in the session

Most Asian currencies moved little on Monday, while the dollar dropped before a slew of key economic cues due this week, with the Japanese yen strengthening from near two-month lows in expectation of a Bank of Japan meeting.

Concerns over China also kept sentiment towards Asian markets largely muted, after the PBC held its benchmark loan prime rate at record lows earlier in the session. The central bank has limited headroom to loosen policy further, as it struggles to strike a balance between supporting an economic recovery and preventing more yuan weakness.

The yuan moved little in onshore trade, while the offshore yuan surpassed the 7.2 level to the dollar.

The dollar was hit with some profit-taking after a resilient start to the year, with the outlook for the dollar looking robust as traders began pricing in a greater possibility of higher-for-longer U.S. interest rates. This notion weighed on most Asian currencies over the last few weeks.

The yen was among the worst-hit by expectations of high U.S. rates, but saw some strength on Monday, increasing 0.2% from its weakest levels since late-November.

Focus was chiefly on the conclusion of a Bank of Japan meeting on Tuesday, where the central bank is broadly expected to maintain negative interest rates and its yield curve control mechanisms.

Analysts expect little changes to the Bank of Japan’s stance, particularly amid increased uncertainty over the Japanese economy after a devastating earthquake at the beginning of the year.

Softening inflation and sluggish wage growth is also expected to put little pressure on the Bank of Japan to consider tightening policy.

Beyond the Bank of Japan meeting, focus this week is also on Tokyo consumer inflation for January, which is expected to reflect any inflationary impacts from the new year earthquake.

Broader Asian currencies were muted as they nursed losses from a weak start to the year. The Australian dollar stabilised after slipping to a two-month low, while the South Korean won shed 0.2% and remained in sight of a near three-month low. South Korean GDP data for Q4 is also due this Thursday.

The Singapore dollar stabilised near two-month lows ahead of key inflation data later this week.

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