In 2025, Asian central banks face a challenging situation as a rising U.S. dollar pushes currencies like the Japanese yen, South Korean won, Chinese yuan, and Indian rupee to multi-year lows. Although a weaker currency could enhance export competitiveness, it risks fueling imported inflation and increasing speculative pressure on the currencies, complicating monetary policy. The U.S. dollar has appreciated significantly, driven by anticipated inflationary policies from the newly elected President Trump, leading the Federal Reserve to slow interest rate cuts amid growing inflation concerns.
Currency devaluation pressures are particularly acute for China, where the yuan recently hit a 16-month low, complicating the People’s Bank of China’s ability to lower interest rates without capital outflows. While a weaker yuan could temporarily boost exports, it also thwarts neighboring economies trying to enhance their competitiveness. In Japan, aggressive measures by the Bank of Japan to support the yen have proven insufficient, while South Korea’s Bank of Korea has opted for rate cuts despite a weakening won. India’s rupee has also plummeted, experiencing significant selling pressure, prompting the Reserve Bank of India to maintain stability through its substantial foreign exchange reserves.
