Asia FX: Yen Slips After BOJ Cuts Outlook; Aussie Rises on Trade Beat

Most Asian currencies edged lower in thin holiday trade Thursday, while the Japanese yen weakened after the Bank of Japan slashed its economic growth forecast and maintained ultra-loose policy.

The yen fell 0.5% against the dollar after the BOJ left rates unchanged and downgraded GDP growth to 0.4%-0.6% for fiscal 2025, down from a prior 0.9%-1.1%. Core CPI expectations were also trimmed. The dovish tone dampened bets on a near-term rate hike, pressuring the yen despite its strong April performance on safe haven demand.

The U.S. dollar firmed modestly, with the dollar index up 0.2%, as sticky inflation in Q1 offset concerns over an unexpected GDP contraction. The Fed’s preferred PCE inflation gauge rose more than forecast, keeping rate path uncertainty alive.

Broader Asian currencies were mixed. The Australian dollar outperformed, up 0.2%, after March trade data showed a surprise surplus, likely boosted by exporters front-running U.S. tariffs. Analysts remain cautious on sustainability.

Elsewhere, the offshore Chinese yuan (USDCNH) and Singapore dollar (USDSGD) each slipped 0.1%-0.2%. With China and other major markets closed for Labor Day, volumes stayed muted.

Traders remain on edge as U.S.-China trade tensions simmer and BOJ policy trajectory stays unclear.