MUFG analysts say Asia FX is being driven by the US-Israel conflict with Iran and any disruption to energy supply. They add that differences in macro policy across countries are also affecting currency moves. They report that Asian currencies have seen modest depreciation against the Dollar so far. They warn that a longer war and higher energy prices could lead to sharper Asia FX weakness.

Asia Fx Drivers And Energy Risk

They say markets are currently pricing in a short-lived conflict and short-lived energy disruption. They add that a worse outlook could trigger a broader market reaction, including for Asia FX. They note some Asian currencies are near historical lows, and rising energy prices could worsen trade balances. They say this may lead some Asian central banks to intervene in FX markets, including possible verbal intervention from Japanese and South Korean officials to slow the depreciation of the JPY and KRW. They flag the US CPI on March 11 as a key data release. They say an upside surprise could support a higher-for-longer Fed stance and put further pressure on Asian currencies. The primary focus for us in the coming weeks is the conflict between the US, Israel, and Iran and its impact on energy prices. Recent reports of renewed tension in the Strait of Hormuz have already helped push Brent crude over 5% in the last week, with it now trading near $95 a barrel. The market seems to be betting that this is a temporary flare-up, similar to the short-lived price spikes we saw in 2025.

Key Watchpoints For Asia Fx

This assumption presents a significant risk, as any sign of a prolonged conflict could send energy prices soaring and trigger a sharp sell-off in Asian currencies. A sustained move for oil above the $100 mark, a level not held since mid-2024, would severely damage the trade balances of energy-importing nations. This creates an opportunity to position for higher volatility in the weeks ahead. Adding to this pressure is the upcoming US CPI report on March 11th. The market is expecting a 3.2% year-over-year figure, but after inflation proved much stickier than anticipated throughout 2025, an upside surprise is a real possibility. A higher inflation number would reinforce the Federal Reserve’s “higher-for-longer” message, further strengthening the US dollar against Asian currencies. Given these factors, we should prepare for bigger swings in currency pairs like USD/JPY and USD/KRW. The Japanese yen is already nearing the 155 level against the dollar, a zone that drew strong warnings from officials in late 2025. This suggests that using options to guard against, or profit from, a sudden depreciation in the yen or won could be a sensible approach. We must also be on high alert for potential central bank intervention, particularly from Japan and South Korea. Watch for any “verbal intervention” from officials, as this is often the first step before more direct action is taken to support their currencies. Such statements would create short-term trading opportunities and signal that currency weakness is nearing a critical point for policymakers. Create your live VT Markets account and start trading now.

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