According to BNY’s Geoff Yu, investors have largely abandoned long positions in the Japanese Yen (JPY) and South Korean Won (KRW) as these currencies remain weak against the U.S. Dollar (USD) and Chinese Yuan (CNY) [1]. Yu notes that the current fundamentals provide limited justification for further weakness in these Asian currencies, especially as the decline in oil prices has reduced the balance-of-payments pressure that previously supported depreciation [1].
Yu highlights that both China and the U.S. have been notably silent regarding the valuations of JPY, KRW, and the Taiwan Dollar (TWD), with little pushback from U.S. officials despite the KRW's continued weakening [1]. He points out that intervention by regional central banks has not been aimed at structurally strengthening these currencies, and any potential rate hikes are expected to be modest compared to those in developed markets outside Asia [1].
The report also mentions that the U.S. Federal Reserve's stance, as reflected in recent comments by Chair Kevin Warsh, is not perceived as overly hawkish, which weakens the USD carry trade as a driver for further Asian currency weakness [1]. Yu suggests that if the U.S. cannot justify further USD strength against JPY, KRW, and TWD on fundamental grounds, strategic and geopolitical considerations—particularly around AI supply chains—could prompt a policy shift [1]. Such a move could trigger a sharp rebound in these Asian currencies, especially given the current market positioning [1].
Yu concludes that a new U.S. policy push, whether public or behind the scenes, could lead to material strengthening in JPY, KRW, and TWD, with the possibility of signaling through the semiannual currency report as an additional tool [1].
CONCLUSION
BNY’s analysis suggests that Asian currencies like JPY, KRW, and TWD may be poised for a sharp rebound if U.S. policy shifts in response to strategic considerations. Current market positioning and weakened fundamental drivers for further depreciation increase the potential for a sudden adjustment.