Asian banks’ FX desks brace for volatility as yen intervention risks return

[SINGAPORE] Currency trading across Asia gathered momentum in the final stretch of January, after actions by US officials triggered intervention talk around the yen and jolted markets out of an otherwise subdued start to the year, heads of foreign exchange trading desks told The Business Times.

The momentum is expected to carry into February, after Japan’s weekend election thrust the yen back in the spotlight and revived talk of currency intervention. Heightened political sensitivity to currency moves has kept markets on edge, as investors position for further volatility and policy signals out of Tokyo and Washington.

Meanwhile, traders said the pickup in January came despite a high base a year earlier. January 2025 had already seen a burst of activity, as investors positioned for the return of US President Donald Trump to the White House.

“In comparison, January 2026 started out slower, but we are now seeing a very notable pickup in trading volumes,” said Nathan Swami, head of Asia-Pacific FX trading and Singapore markets at Citi.

“The market has latched on to the US dollar theme once again, and we have seen a lot of interest in buying yen, Australian dollar, offshore yuan, Korean won and Singapore dollar versus the US dollar in our time zone,” he said.

For OCBC, FX trading volumes in January were lower than a year earlier, reflecting the high base in 2025, said Benedict Tan, head of global markets trading.

Meanwhile at ING, client engagement has remained “healthy and constructive”, with most currency pairs registering year-on-year growth, said Obbe Kok, head of financial markets for Asia-Pacific.

“Participation has been broad-based across client segments – corporates remain highly active, with a continued focus on protecting margins, managing cash flows and optimising hedging programmes in a more volatile FX environment,” said Kok.

“At the same time, financial institutions have been increasingly active, particularly around relative-value opportunities across FX and rates,” he added.

Liu Chee Wei, head of markets in Singapore and Asean at Standard Chartered, said overall FX activity has “remained elevated”, broadly matching levels seen a year earlier when “markets rushed to hedge and react to Trump’s policies on trade and politics”.

“However, the key difference between January 2025 and January 2026 is the client mix,” observed Liu.

“In January 2025, activity reflected a broad mix of corporates, real money and fast money; in January 2026, most of the client activity our desk has serviced has come from the fast money and real money sectors,” he said.

Real money investors typically include asset managers, pension funds and insurers with longer-term horizons, while fast money refers to hedge funds and proprietary trading desks that trade more tactically and are quicker to adjust positions.

Year on year, the “sharpest increase” in activity has been in the US dollar-yen pair, driven by domestic political developments in Japan – such as Prime Minister Sanae Takaichi’s decision to call a snap election for Feb 8 – as well as the Opens in a new tabrecent “rate check” episode by the New York Federal Reserve, Liu said.

At UOB, volatile FX conditions and a weaker US dollar have driven higher hedging demand, with more corporates turning to longer-tenor instruments such as FX forwards to “protect margins and reinforce financial resilience”, said Kelvin Ng, head of group global markets.

“With geopolitical developments still prompting rapid shifts in sentiment, we expect FX volatility to stay elevated,” Ng said.

Intervention watch

The rebound in FX trading followed reports on Jan 23 that US authorities had conducted so-called “rate checks” in the US dollar-yen market – a step widely read by traders as a signal that American officials were assessing the need for intervention.

Such action has not been taken against the yen since 2011, following Japan’s Tohoku earthquake.

The reports Opens in a new tabsent the US dollar sharply lower against the yen, along with most Asian currencies, although the greenback has since clawed back some losses.

On a year-to-date basis, the US dollar index was down 0.5 per cent to 97.84 as at Friday (Feb 6) evening, rebounding from lows of 95.55 seen after the intervention speculation. Over the past 12 months, the index – which tracks the greenback against a basket of six major currencies – was down 9.2 per cent.

The yen was trading at around 157.10 to the US dollar on Friday evening, after strengthening to as low as 152.33 when the news first broke. Analysts earlier said they expect the Japanese currency to trade between 148 and 153 per US dollar by end-March, and between 145 and 151 by end-June.

The Singdollar was trading at about 1.27 against the greenback on Friday evening, Opens in a new tabafter touching 1.2588 in late January – an 11-year high. Analysts expect the Republic’s currency to trade between 1.28 and 1.29 per US dollar by end-March, and between 1.26 and 1.29 by end-June.

Outlook ahead

Looking ahead, OCBC’s Tan expects the yen to “continue to see interest”, as it “remains one of the highest interest differential currencies with the US”, referring to the gap between Japanese and US interest rates.

The euro is also likely to see more pickup, as Nato members step up defence spending as part of Europe’s broader rearmament push, he added.

In Asia, the US dollar-won pair will be “one of the more actively traded currency pairs” in the year ahead, noted Divya Devesh, co-head of FX research for Asean and South Asia at Standard Chartered.

“The outlook is shaped by an improving balance-of-payments backdrop, ongoing structural changes in investment flows and hedging practices, and a clear policy push towards a stronger currency from Korean authorities,” he said.

ING’s Kok also expects the won, along with the Taiwan dollar and yuan, to remain active in trading over the coming year.

“Local fundamentals in these markets remain compelling, and a weaker US dollar backdrop continues to support both hedging and investment-related activity,” said Kok.

“Overall, we expect FX to remain firmly anchored as a core risk-management tool rather than a purely directional trading market,” he added.

Originally published on The Business Times: Opens in a new tabhttps://www.businesstimes.com.sg/companies-markets/asian-banks-fx-desks-brace-volatility-yen-intervention-risks-return?ref=author