Reasons behind the decline of Asian currencies against the dollar

Currency Trends in East Asia: A Mixed Picture

Last year, following President Donald Trump’s “Emancipation Day” tariffs, there was a lot of optimism about a potential “currency avalanche,” where Asian exporters’ currencies would gain rapidly. However, the reality has turned out to be quite different. The Japanese yen and South Korean won remain near historic lows, while the Taiwanese dollar has lost most of its earlier gains against the US dollar.

This decline has caught the attention of US Treasury Secretary Scott Bessent, who has voiced concerns over the weakening currencies. Interestingly, since last Friday, the yen has rebounded amid speculation that the US and Japan might coordinate efforts to intervene in the currency market.

For traders, it’s puzzling why these currencies are struggling even as the dollar weakens against others like the pound and euro. East Asian countries are running significant trade surpluses, and the interest rate gap with the US is at a low point compared to recent years.

Several factors could be at play here. There might be capital outflows related to the US’s AI boom, worries over Japan’s fiscal policies, or effects stemming from investment agreements with Trump’s administration.

Mithul Koteka, from Barclays, noted that while the dollar was strong in the latter half of last year, buoyed by robust US economic growth and substantial investments from Asia, regional currencies have not been faring well. In Taiwan, heavy purchases of US Treasuries by life insurance firms are putting pressure on the local currency, particularly after new accounting rules that ease foreign investment hedging. South Korea is facing a similar situation, with individual investors heavily investing in US stocks, which has weakened the won.

Japan, South Korea, and Taiwan have each committed to significant investments in the US—$550 billion, $350 billion, and $250 billion respectively—as part of trade deals with the Trump administration. However, this has raised concerns about large capital outflows, particularly as the agreement has faced criticism and legislative delays in Congress.

Vincent Chan from T. Rowe Price expressed doubts about how South Korea will manage its part of the investment commitment, noting that Japan might be grappling with similar pressures.

In light of these issues, South Korea expanded its ability to issue foreign currency bonds last month to stabilize the won’s value.

Jason Pan of JPMorgan mentioned that semiconductor companies in South Korea and Taiwan prefer to hold dollars for new factories in the US rather than converting them to local currencies. Meanwhile, economist Richard Yessenga pointed to Japan’s expanding fiscal policies as destabilizing for the yen, with ripple effects across the region.

Last year, there were expectations that the US would push Asian allies to support their currency, which many still consider undervalued. However, the ongoing weakness of these currencies has only accelerated trade surpluses with the US, frustrating President Trump.

As countries with aging populations continue to rely heavily on exports, Kit Juquez from Société Générale suggested that these nations may prefer weaker currencies to maintain competitiveness.

Despite the current trends, some traders maintain a positive outlook for regional currencies in 2026. JPMorgan’s Pan stated that they remain optimistic about Asian currencies over the year. Interestingly, the Chinese yuan is the only major currency in the region that has appreciated against the dollar recently, which has sparked discussions about tensions related to trade and currency strength.