Asian currencies weaken as yen slips, dollar holds near weekly high

Asian currencies remained relatively stable on Friday as the Japanese yen continued its decline for a second consecutive day. Meanwhile, the U.S. dollar held near a one-week high ahead of upcoming economic data and central bank decisions in the coming week. The U.S. dollar index stood at approximately 99.10, showing minimal change after a 0.3% increase on Thursday to its highest level since September 7.

The yen's USD/JPY exchange rate was around 154.34, reflecting a 1.2% gain against the dollar this week. However, the pair has slipped over 3% over the past month following a sharp rally earlier in September.

Brent crude prices rose 1.2% to $108.96 a barrel, driven by renewed Middle East tensions that raised concerns about potential disruptions to energy supply. U.S. producer prices increased by 0.4% in August, as expected, according to data released on Thursday. Energy prices rebounded over the month, adding to worries that elevated oil prices could sustain inflationary pressures.

Traders are now eyeing U.S. consumer-price data released later on Friday, regarded as one of the final significant releases prior to the Federal Reserve's meeting on September 15-16. Market sentiment suggests a 71.3% likelihood of a 25-basis-point rate hike at the Fed meeting, up from 61.2% the previous day, according to CME Group's FedWatch tool.

A stronger-than-anticipated CPI reading could further bolster the dollar by reinforcing expectations for tighter monetary policy.

DBS Bank forecasted the Federal Reserve to maintain its policy rate at 3.75% during the September meeting, but cautioned that the meeting could be contentious, with market expectations leaning towards a rate increase. The surge in U.S. yields has also exerted pressure on global bond markets. The 10-year Treasury yield was near 4.97% early Friday, close to the 5% level.

The yen experienced a slight rebound after Japan's wholesale inflation data revealed prices rose 7.6% year-on-year in August, surpassing economists' expectations. This development bolstered expectations of a rate hike by the Bank of Japan (BOJ) next week. The BOJ is widely anticipated to raise its policy rate by 25 basis points to 1.25% at its meeting on September 17-18.

DBS Bank also anticipates a 25-basis-point increase but anticipates a more measured tightening approach rather than a rapid series of hikes. Consequently, the yen's value remains vulnerable to both the BOJ's guidance and the Federal Reserve's decision, particularly following the yen's substantial decline over the past month.

Other Asian currencies exhibited mixed weekly performances. The USD/AUD pair rose about 0.6% this week, indicating a weaker Australian dollar, while the New Zealand dollar has recently strengthened. The USD/CNH and USD/CNY pairs remained largely flat over the week. The USD/SGD pair was also essentially unchanged, while the USD/KRW pair was minimally affected despite the won's strengthening in Friday trading.

The USD/INR pair stood at around 95.67, after the rupee faced pressure from the recent surge in oil prices. Upcoming next week, several crucial Asia economic data releases are scheduled. India is set to release August CPI, exports, and imports data on Monday. China's August retail sales, industrial production, and fixed-asset investment figures are due on Tuesday, followed by Japan's August trade data on Wednesday.