The Japanese yen rose 0.3% and was among the best performers for the day after reports said that Japan nominated academic Kazuo Ueda as the next central bank governor – a surprise choice amid expectations that the role would go to career central bankers.
The unexpected pick also fueled some speculation that Ueda could dismantle the BOJ’s yield curve control sooner rather than later, as the country grapples with rising inflation and weakening growth.
Preliminary data showed on Tuesday that the Japanese economy grew less than expected in the fourth quarter, amid continued headwinds from inflation and weak overseas demand.
Focus is squarely on U.S. consumer price index inflation due later in the day. While the reading is expected to have fallen in January from the prior month, it is still expected to remain relatively high.
Markets are also wary of any potential bigger-than-expected surprises in core inflation, which could give the Federal Reserve more impetus to keep raising interest rates this year.
Such a scenario bodes poorly for Asian currencies, given that it would drive up yields on less risky debt and pull capital away from the region.
The Indian rupee fell 0.1% as data showed that CPI inflation grew more than expected in January, and was now back above the Reserve Bank’s 6% upper limit. While the reading gives more credence to the RBI’s hawkish stance, it also points to near-term economic pressure on the Indian economy.