Broader Asian currencies moved in a flat-to-low range

Most Asian currencies were firm on Friday. The yen lagged its peers despite strong household spending data, while the yuan was flat following positive inflation readings for December.

Broader Asian currencies moved in a flat-to-low range.

Heightened geopolitical uncertainty across the globe also kept traders wary of risk-driven markets. A diplomatic spat between China and Japan showed few signs of easing.

The yuan’s USD/CNY pair dropped almost 0.1%, remaining at its lowest level in 2-½ years.

Consumer price index data showed inflation rising to its strongest level in nearly three years in December, amid improving private spending and higher food prices.

Producer price index inflation also dropped at a slightly slower-than-expected pace, driving some optimism that China’s deflationary woes were now on the backburner.

But Capital Economics analysts warned that a bulk of the CPI increase was due to seasonal trends, and that broader Chinese deflationary pressures still remained.

Without stronger demand-side measures, we think overcapacity and the resulting deflationary pressures will persist in the coming years, analysts wrote in a note.

Beijing is expected to dole out even more economic support this year, as it moves to shore up growth from a post-COVID lull.

Asian currencies broadly moved in a flat-to-low range in anticipation of the print.

The yen lagged its peers on Friday, with the USD/JPY pair increasing 0.3% and coming back above 157 yen. The currency took little support from data showing Japanese household spending unexpectedly increased in November– a trend that is likely to underpin inflation.

But the household spending data was preceded by middling wage income data on Thursday, which left traders lukewarm on the Japanese economy. Risks from a diplomatic spat with China, which saw Beijing enact more economic measures against Japan, also weighed.

The Taiwan dollar’s USD/TWD pair advanced 0.3%, while the Singapore dollar’s USD/SGD rose nearly 0.1%.

The won’s USD/KRW pair added 0.2% and was among the worst performers in Asia this week, with a 0.9% rise.