Asian Currencies Weaken as Stronger Dollar Weighs, Yen Supported by GPIF Repatriation Hopes

Most Asian currencies traded lower on Monday as a stronger U.S. dollar and rising Treasury yields pressured regional foreign exchange markets, while the Japanese yen drew support from renewed speculation that Japan’s massive public pension fund could increase investments in domestic assets.

Investor sentiment remained cautious after fresh missile exchanges between the United States and Iran revived geopolitical tensions. Tehran also reiterated claims that it had closed the Strait of Hormuz, raising concerns over global energy supplies and reinforcing fears that higher oil prices could keep inflation elevated.

The stronger inflation outlook boosted the U.S. dollar as traders scaled back expectations for Federal Reserve interest rate cuts ahead of Fed Chair Kevin Warsh’s first congressional testimony and the release of U.S. inflation data later this week.

The Japanese yen remained a key focus after Finance Minister Satsuki Katayama said she wanted public pension funds, including the Government Pension Investment Fund (GPIF), to increase exposure to Japanese financial assets. The remarks fueled speculation that the GPIF could gradually repatriate part of its overseas investments, creating sustained demand for the yen.

Although the USD/JPY pair edged about 0.2% higher to around 162.1, it remained below last week’s peak near 162.7, when intervention concerns weighed on the pair. Analysts estimate that a shift in GPIF allocations could generate between JPY12 trillion and JPY30 trillion in potential yen buying, offering meaningful long-term support for Japan’s currency.

Separately, reports indicated the Bank of Japan may raise its fiscal 2026 economic growth forecast later this month while maintaining its view that inflation risks remain tilted to the upside, supported by a weaker yen and resilient artificial intelligence-related investment.

Elsewhere, regional currencies broadly weakened. The South Korean won fell as USD/KRW climbed above 1,507, while the Taiwan dollar stayed under pressure amid continued foreign selling of technology stocks. South Korea’s KOSPI briefly triggered a trading curb after falling more than 5%.

The Australian dollar also weakened, while China’s yuan remained relatively stable. Investors are now watching key economic releases this week, including China’s June trade figures, second-quarter GDP, retail sales, industrial production data, Singapore’s preliminary second-quarter GDP, and the Bank of Korea’s upcoming monetary policy decision.