Most Asian currencies moved little on Wednesday amid caution before more signals on interest rate cuts from the Federal Reserve due later in the day, with the dollar sitting at two-week highs.

The Japanese yen extended its declines after the Bank of Japan struck a largely dovish chord, despite hiking interest rates for the first time in 17 years.

Dollar at 2-week high before Fed signals on rate cuts

The dollar index and dollar index futures rose slightly in Asian trade, with focus largely on the conclusion of a Fed meeting later in the day.

The central bank is widely expected to keep interest rates unchanged. But any signals on potential rate cuts, specifically from a press conference with Fed Chair Jerome Powell after the meeting, will be awaited.

Traders fear a potentially hawkish tilt from the central bank, given that inflation read hotter-than-expected for the past two months.

USDJPY at 4-mth high, EURJPY tests 2008 peaks

Weakness in the yen saw the USD/JPY pair surge nearly 2% since Tuesday to around 151.30- its highest level since mid-November. Losses in the yen came even with Japanese markets closed for a holiday.

The yen fared even worse against the euro, with the EUR/JPY pair surging to its highest level since 2008.

Weakness in the yen came chiefly after BOJ Governor Kazuo Ueda said the central bank would maintain accommodative conditions to support the Japanese economy. His comments largely overshadowed the bank’s move away from negative interest rates and yield curve control.

Analysts at Citi said that U.S. interest rates remained the main drivers of the yen and that the currency only stood to strengthen later in 2024 if U.S. rates began falling.

They also cautioned over potential intervention in currency markets by the Japanese government, especially if the USD/JPY crossed 152.

Broader Asian currencies moved little, as anticipation of the Fed deterred any big bets. The Australian dollar rose 0.1%, with the AUD/USD pair recovering from sharp losses in the prior session after the Reserve Bank of Australia kept interest rates steady and struck a somewhat dovish chord.

The Chinese yuan was flat, with the USD/CNY pair trading just a whisker away from the psychologically important 7.2 level. The People’s Bank of China kept its benchmark loan prime rate unchanged as expected on Wednesday.

The South Korean won’s USD/KRW pair rose 0.1%, while the Singapore dollar’s USD/SGD moved little. The USD/INR pair rose above the 83 level.