Asia's Currencies Slip as Trump Reaffirms Tariffs, Yen Gains on Tokyo CPI

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Most Asian currencies continued to decline on Friday as U.S. President Donald Trump reaffirmed his tariff schedules, while the Japanese yen saw a slight increase following a strong inflation report from Tokyo.

The US Dollar Index gained 0.1% in Asian trading as investors awaited the release of the Personal Consumption Expenditures (PCE) price index later in the day, which is expected to provide insights into the Federal Reserve's future interest rate decisions.

Trump confirmed that starting March 4, the U.S. will impose a 25% tariff on imports from Mexico and Canada, along with an additional 10% levy on Chinese goods, citing concerns over the flow of illicit drugs, particularly fentanyl.

Asian currencies fell as concerns grew that rising trade tensions could hinder economic growth in export-driven Asian economies, prompting investors to flock to the perceived safety of the U.S. dollar.

The Indonesian rupiah and South Korean won saw the biggest declines, with their respective USD/IDR and USD/KRW pairs rising 0.8% and 0.7%. The Chinese yuan showed little movement, while the Australian dollar dropped 0.2%. The Malaysian ringgit gained 0.5%, and the Indian rupee rose 0.1%. The Singapore dollar was mostly unchanged.

Meanwhile, the Japanese yen edged up as Tokyo’s core inflation climbed 2.2% year-on-year in February, despite slowing slightly from January’s 2.5% increase. This continued inflation trend above the Bank of Japan’s 2% target supports expectations for future rate hikes by the BOJ.

In other economic news from Japan, industrial production fell 1.1% in January, in line with market forecasts, while retail sales grew 3.9% year-on-year, meeting expectations and suggesting steady consumer demand.

Market participants are keenly awaiting the U.S. PCE inflation data to assess the Federal Reserve's next moves on interest rates. Recent weaker-than-expected PMI and consumer sentiment data have led to speculation about potential rate cuts, although immediate reductions remain unlikely as the Fed closely monitors the economic landscape.

The release of PCE data is expected to influence the U.S. dollar's future performance, especially after it weakened due to concerns over sluggish economic growth. Analysts from ING noted that although the dollar has faced pressure recently, expectations surrounding U.S. tariffs will likely push the dollar higher in the long term.

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