Asian FX steady before key central banks

Asian share markets started the week on a cautious footing as investors prepared for a series of major central bank meetings and a wave of corporate earnings. Japan’s Nikkei fell 0.8% after a 4.0% loss the previous week, while South Korean stocks declined 0.4% and have dropped almost 19% so far this month. MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.1%, reflecting subdued risk appetite across the region. The softer tone in equities came as oil prices eased from six‑month highs, helping temper some of the pressure that had built up in recent sessions.

The backdrop for these moves includes heightened investor focus on the durability of the recent AI-driven equity rally, with upcoming earnings seen as a test of whether profit trends can justify earlier gains. At the same time, rising global borrowing costs and elevated energy prices linked to the conflict involving Iran remain in view, contributing to the cautious stance in risk assets.

In currency markets, trading ranges were relatively tight as investors awaited policy signals. The Japanese yen was little changed at 157.00 per dollar, retaining safe‑haven support after gaining about 0.8% over the previous week. Earlier risk‑off trading had seen dollar/yen (USDJPY) fall to around 156.08 at one point, before stabilising as equity losses in Japan narrowed. The pause in yen buying suggests investors are now reluctant to extend positions ahead of central bank decisions.

The euro held steady at US$1.1204, with political unrest in France keeping investors cautious even as the country avoided a credit downgrade last week. Sterling was also stable at US$1.3346, as markets looked ahead to the first budget from Britain’s new finance minister, John Healey, due on Wednesday. That fiscal event comes against a backdrop of higher global borrowing costs and sustained pressure from elevated energy prices.

The Federal Open Market Committee will meet on October 27–28, followed by the Bank of Japan’s Monetary Policy Meeting on October 29–30. Both central banks are widely expected to keep interest rates unchanged at these gatherings. Market participants are therefore placing particular emphasis on the accompanying statements and press conferences for indications about the timing and pace of any future rate hikes. Current pricing implies an 80% chance that the Federal Reserve will raise rates in December, and similar expectations are embedded for the Bank of Japan and the European Central Bank in coming months.

Within the region, the Reserve Bank of New Zealand is widely expected to raise interest rates at its meeting on Wednesday. That prospect, alongside the steady stance expected from larger central banks, is shaping rate differentials that could influence capital flows and currency performance in Asia. Outside Asia, political developments also frame market sentiment, with Brazil’s real yet to trade in Asia after President Luiz Inacio Lula da Silva secured an unprecedented fourth term, as confirmed by the country’s electoral court.