Most Asian Currencies Advance as Yen Holds Near 7-Month High, Dollar Weakens

Most Asian currencies strengthened on Wednesday as the Japanese yen held firm near a seven-month high, placing broad pressure on the U.S. dollar. The greenback was also weakened by a surge in oil prices, which stoked inflation concerns ahead of key central bank policy meetings next week.

Dollar Pressured by Oil and Yen

The U.S. dollar index, which measures the currency against a basket of its peers, traded around 98.15, near its lowest level in almost two weeks. The weakness comes as Brent crude futures climbed 1.5% to $99.37 a barrel amid escalating conflict in the Middle East, raising risks of supply disruptions and persistent global inflation.

Rising energy costs complicate the outlook for the Federal Reserve, which meets on September 15-16. Investors are now awaiting Friday's U.S. inflation report for further clues on the central bank's monetary policy path. The dollar's decline was also heavily influenced by the yen's significant rally.

Yen Strength Driven by BOJ Policy Bets

The Japanese yen traded around 153.65 per dollar after strengthening to 152.89 on Tuesday, its strongest level since February. The currency has gained approximately 4% in September, driven by several factors:

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• Monetary Policy Shift: Traders widely expect the Bank of Japan (BOJ) to raise interest rates by 25 basis points at its September 17-18 meeting.
• Repatriation Flows: The yen's rally is supported by expectations that Japanese investors may begin repatriating funds held overseas.
• Record Intervention: Tokyo has spent the equivalent of $96.4 billion over the past month to support its currency, partly financed by selling its holdings of foreign securities.

Regional Currencies Follow Suit

The Chinese yuan firmed near a 3.5-year high, with the offshore USD/CNH pair at 6.7051. The currency found support after data showed China's consumer price index rose to 0.8% year-on-year in August, though underlying domestic demand remains a concern.

Elsewhere in the region, the South Korean won held near a two-year high. The Australian dollar rose 0.12% to $0.7225, while the New Zealand dollar gained 0.16% to $0.5862. However, some currencies bucked the trend, with the Indian rupee and Malaysian ringgit weakening against the dollar.