Investing.com– Most Asian currencies rose on Friday, while the dollar fell after the Federal Reserve sharply cut interest rates and began a cycle of monetary easing.

The Japanese yen was among the better-performing currencies, strengthening after the Bank of Japan kept interest rates unchanged and said it expected inflation and economic growth to continue to rise.

The Chinese yuan also rose after the People’s Bank of China kept interest rates unchanged, dashing some expectations that the rate cut would be aimed at further supporting the economy.

Yen sturdy as BOJ keeps interest rates steady, signaling higher inflation

The Japanese yen strengthened on Friday, with the pair down 0.2% to 142.28 yen.

The Bank of Japan made a unanimous decision and stated that it expects a steady raise in inflation and economic growth.

While the central bank did not offer any overtly hawkish signals, its forecast for higher inflation came with expectations that the BOJ would raise interest rates even further. Many policymakers have signaled that rates will rise even further in the coming months, especially as inflation picks up.

The BOJ’s decision and forecast came just hours after data showed inflation hit a 10-month high in August as rising wages boosted private consumption.

While the yen lost ground for the week, it remained close to its strongest 2024 levels reached earlier this week. Expectations of higher interest rates are likely to support the yen in the coming months.

Weak dollar after rate cut offsets Fed’s less dovish signals

Both rates fell slightly in Asian trading, extending overnight declines as markets anticipated US interest rate cuts.

The Federal Reserve announced the start of an easing cycle that could result in interest rates falling by as much as 125 basis points by the end of the year.

But Fed Chairman Powell offered a less dovish outlook for medium- and long-term interest rates, saying the central bank’s neutral rate will be much higher than in the past. His comments constrained overall dollar losses and also prompted a surge in the U.S. dollar immediately following the Fed’s decision on Wednesday.

Chinese yuan at 16-month high as PBOC keeps interest rates steady

The Chinese yuan strengthened on Friday, with the currency pair falling 0.3% to its lowest level since May 2023.

The yuan’s strengthening came as the PBOC held its base value stable, dashing some expectations that the yuan would cut interest rates to stimulate the economy.

The PBOC’s decision comes as a number of recent economic indicators have shown continued weakness in China.

However, media reports say the PBOC has ordered local banks to buy dollars and limit the overall strength of the yuan, given that a stronger yuan also weighs on Chinese exports.

Broad Asian currencies rose after the Fed’s decision. The Australian dollar rose 0.2% to near an eight-month high.

The South Korean won pair rose 0.2%, while the Singapore dollar pair fell 0.1%.

The Indian rupee fell 0.1%, a further decline from record levels reached earlier this year.