Traders balanced monetary policy uncertainty against a firm dollar backdrop

Asian currencies were subdued on Friday, while a soft Japanese inflation figure clouded the outlook for further Bank of Japan rate hikes.

The yen’s USD/JPY pair was largely unchanged.

Data on Friday showed that Japan’s consumer price index inflation dropped to a near four-year low in January, while the core measure slowed to a two-year low of 2% in January, matching the BOJ’s target and signalling cooling price pressures.

Headline inflation declined to 1.5% – below the BOJ’s target for the first time in almost four years – while a measure stripping out both fresh food and fuel also slowed, though it remained above target, suggesting underlying inflation momentum is moderating.

The weaker inflation number reinforced doubts about the timing of the central bank’s next rate hike.

Other data on Friday showed that Japan’s factory activity expanded at its fastest pace in just over four years in February.

Elsewhere, traders balanced monetary policy uncertainty against a firm dollar backdrop.

The won’s USD/KRW traded flat, while the Singapore dollar’s USD/SGD ticked up 0.1%.

The yuan’s offshore pair USD/CNH also traded flat, while the Indian rupee’s USD/INR ticked 0.1% lower.

The Australian dollar’s AUD/USD pair edged 0.3% lower on Friday.

Meanwhile, the US dollar was on track to climb over 1% this week, its strongest weekly performance in months, buoyed by solid data and geopolitical tensions.

The US Dollar Index edged up 0.1% after rising to a one-month high overnight, supported by safe-haven demand and hawkish central bank minutes this week.

US Dollar Index Futures also traded 0.1% higher by 04:51 GMT.