USD/SGD

Wednesday in Asian currency markets began with an oppressive calm. Asian currencies did not move. The dollar did not move. The dollar index (DXY) remained frozen after four days of decline. Everyone stood still. Like rabbits before a predator. Or like traders ahead of the most important event of the week — the meeting of the U.S. Federal Reserve, the first under new Chairman Kevin Warsh.

USD/JPY — the Japanese yen — fell by 0.1% to 160.30. It was a symbolic move. Even after the Bank of Japan raised its rate to 1.0% the previous day — the highest in 31 years — the yen did not strengthen. Because everyone is waiting for the Fed.

USD/CNY — the Chinese yuan — was unchanged. USD/SGD — the Singapore dollar — was unchanged. USD/INR — the Indian rupee — fell by 0.3%, but this was a local move. AUD/USD — the Australian dollar — was unchanged after the RBA kept rates steady.

Only USD/KRW — the South Korean won — rose by 0.4%, breaking away from the general trend. But even this was likely linked to a tech rally in Samsung and SK Hynix shares rather than currency policy.

The reason for the calm is anticipation. Traders do not want to open new positions ahead of the Fed meeting. Uncertainty is too high. The risks are too large.

There is also the peace agreement between the U.S. and Iran. Details are becoming clearer. On Tuesday, the first concrete terms emerged. The agreement provides for the immediate resumption of Iranian oil exports. Iran agrees not to develop nuclear weapons and freezes its nuclear program for 60 days for negotiations.

This is positive for markets. But traders want to see a signed document, not just words. So they wait.

So what is happening in...

Tuesday began with an event that, under normal circumstances, would have shaken currency markets to their core. The Bank of Japan raised its short-term policy rate by 25 basis points to 1.0% — the highest level in 31 years. The last time Japanese interest rates stood at this level was in 1995, when the internet was still in its infancy and many of today's traders had not even been born.

The decision passed by a 7–1 vote. Governor Kazuo Ueda did not attend the meeting as he is currently undergoing medical treatment in the hospital. The meeting was chaired by Deputy Governor Shinichi Uchida instead. It is an unusual situation: the head of the central bank was absent during a historic policy decision.

And what happened?

Virtually nothing.

USD/JPY barely moved. The yen remained around ¥160.23 per dollar, only slightly different from levels seen before the announcement. Traders who expected a rate hike to strengthen the yen were left disappointed.

Why?

Because markets had already priced in the move over recent weeks. The real surprise would have been if the Bank of Japan had not raised rates. Since the hike was widely expected, the market reaction was essentially zero.

The yen continues to trade near the psychologically important ¥160-per-dollar level. Back in April, when the dollar first broke above ¥160, Japanese authorities intervened in the currency market. This time, they have remained on the sidelines, apparently viewing ¥160 as an acceptable exchange rate with policy rates at 1.0%.

But let's take a closer look at what is actually happening across Asian currency markets on Tuesday, why most currencies appear frozen in place, and what traders are waiting for from other central banks.