Ahead Today
G3: US mortgage applications, eurozone CPI
Asia: BOT policy rate decisions, HK GDP
Market Highlights
Markets appear to remain sensitive to the degree of tolerance within the Japanese government for BOJ policy normalization. Recent local media reports indicate that PM Takaichi has concerns about more rate hikes during a meeting with BOJ Governor Ueda, which could constrain the BOJ’s rate tightening path. This has led to another bout of yen weakness yesterday.
There is likely continued two-way volatility for USDJPY. Indeed, as the yen weakens, there is a risk of FX intervention that could help contain the pace of currency depreciation. Notably, the US Treasury has also reportedly conducted a rate check on USDJPY in January, when the pair was trading around the 158.00–159.00 area, underscoring heightened sensitivity to a sharply weaker yen. This backdrop leaves USDJPY vulnerable to sharper pullbacks, as we have seen in the days after the rate check. Recent yen softness has provided a marginal lift to the US dollar index (DXY), although the USD continues to struggle to convincingly re-establish its medium-term uptrend. Ongoing yen depreciation has kept policy normalization expectations alive, with markets pricing roughly a 56% probability of a BOJ rate hike in April, with a move fully priced by July.
Regional FX
Global trade uncertainty is set to remain a medium term structural feature, as the Trump administration pivots toward rebuilding tariff barriers through slower but more legally defensible channels. With the Supreme Court ruling against the use of the IEEPA for reciprocal tariffs, attention has shifted toward Section 232 (national security) and Section 301 (unfair trade practices) as the primary vehicles for sustaining tariff pressure. In the interim, Trump has announced a 15% global tariff under Section 122 to keep his tariff agenda alive. At this level, most ASEAN economies would benefit at the margin, given it would be somewhat lower than their prevailing reciprocal tariff rates, though trade uncertainty remains. Against this backdrop, we remain constructive on export-oriented ASEAN FX, including the likes of SGD, MYR, and THB. We maintain our end-2026 forecast for USDSGD at 1.2200, USDMYR at 3.7000, and USDTHB at 30.50.
In Malaysia, a combination of stronger economic growth, sustained trade surplus, and rising foreign reserves will help support further ringgit appreciation. In Thailand, the Bank of Thailand could cut rates by 25bps given negative inflation and a generally weak growth outlook, notwithstanding better clarity from the recent election results and the rebound in growth in Q4. But this rate cut would likely mark the end of its easing cycle.