Yen Slides Past 163 to Fresh 40-Year Low as Oil Risk Pressures Asian Importers; Korean Won Bucks Regional Trend

The Japanese yen weakened past 163 per dollar on Wednesday, its lowest level since 1986, as rising U.S. Treasury yields and elevated oil prices supported the U.S. dollar while most Southeast Asian currencies traded under similar pressure. USD/JPY touched 163.24 overnight before easing slightly to 163.17. The Dollar Index edged down to 101.15 after climbing above 101 overnight amid renewed Middle East tensions.

Three factors are shaping Asia's foreign exchange markets:

Yen weakens despite growth blueprint: Prime Minister Sanae Takaichi's "Honebuto no Hoshin" policy plan targets more than ¥370 trillion ($2.3 trillion) in combined public and private investment through fiscal 2040 while reaffirming the Bank of Japan's policy independence. According to DBS FX and Credit Strategist Wei Liang Chang, reaffirming the BOJ's independence could help reduce speculation that the central bank may delay future policy adjustments to support the government's fiscal agenda, providing a stabilizing signal for market sentiment toward the yen even as near-term price action remains pressured by higher oil prices and a stronger U.S. dollar.

Oil-importing economies remain under pressure: With U.S. forces conducting an 11th consecutive night of strikes against Iran and Houthi forces threatening a Saudi naval blockade, elevated crude prices continue to weigh on many Asian oil-importing economies through higher import costs and inflationary pressure. Regional moves included USD/IDR +0.3%, USD/THB +0.4%, USD/INR +0.2%, and USD/MYR +0.3%.

Korean won outperforms regional peers: USD/KRW rose a comparatively modest 0.2% to 1,483.67, while the won has gained around 1.5% against the U.S. dollar over the past six months. Investors have focused on South Korea's currency internationalization roadmap, including plans for an offshore won market, 24-hour trading infrastructure, and eased foreign-exchange regulations as part of broader efforts to pursue MSCI developed-market status and global bond index inclusion. According to DBS, narrowing U.S.-South Korea interest-rate differentials and a widening semiconductor-driven trade surplus could continue to support the won during the second half of 2026.

Elsewhere, AUD/USD traded little changed near 0.7001, while NZD/USD held around 0.5827 after Tuesday's inflation data reinforced market expectations for a possible Reserve Bank of New Zealand rate increase in September.

Market outlook

With Bank Indonesia's policy decision due Wednesday, followed by the European Central Bank on Thursday and policy meetings from both the Bank of Japan and the U.S. Federal Reserve next week, Asia's currency markets face a busy schedule of potential catalysts. The yen's recent weakness remains closely watched given its role as a major global funding currency, while the Korean won provides a performance contrast with regional currencies such as the Indonesian rupiah, Thai baht, and Malaysian ringgit, which have been more directly affected by elevated oil prices.

Sources: Reuters; DBS Bank (Wei Liang Chang, FX and Credit Strategist); Investing.com real-time market data.