The yuan softened after Beijing cut a key reserve rate to facilitate cheaper dollar buying in the country, although the currency still remained close to three-year highs

Most Asian currencies weakened on Friday as markets parsed a mixed interest rate outlook, with the Australian dollar headed for a strong monthly performance, while the yen nursed losses.

The yuan softened after Beijing cut a key reserve rate to facilitate cheaper dollar buying in the country, although the currency still remained close to three-year highs.

The yen’s USD/JPY pair dropped 0.2% on Friday and was set to rise 0.7% in February.

Weakness in the yen came amid increasing doubts over when the Bank of Japan will raise interest rates next– questions which were furthered by soft consumer price index inflation data from Tokyo for February.

The print, which usually acts as a bellwether for national inflation, showed core CPI falling below the BOJ’s 2% annual target for the first time in nearly four years– a trend that is likely to limit the central bank’s plans for more rate hikes.

The yen softened in February as markets questioned the fiscal impact of Prime Minister Sanae Takaichi’s stimulus and tax break plans. Takaichi was seen having a clear path towards her fiscal plans after her ruling coalition won a supermajority in Japan’s lower house of parliament.

The yuan’s USD/CNY pair added 0.2% on Friday after the People’s Bank scrapped a key foreign exchange risk ratio for some forward contracts– a move that allows for cheaper dollar buying in the country.

This came following a strong rally by the yuan against the dollar in recent months, driven in part by exporters dumping the dollar on a strong trade surplus with the US.

The yuan came close to a three-year high on Thursday.

The Australian dollar’s AUD/USD pair gained 0.25% on Friday and was among the best performers in Asia in February.

The Aussie was set to rise 2.3% this month, aided chiefly by an increasingly hawkish outlook for the Reserve Bank.

Broader Asian currency mostly weakened on Friday. The won’s USD/KRW pair gained slightly, but was trading down 1.3% for February.