Investors favor CNY and JPY selectively, but broader APAC currencies remain under pressure amid China inflation spillover concerns.
Asia-Pacific currencies outside the Korean Won and Japanese Yen remain underowned as investors seek diversification but fear inflation spillovers from China. The Chinese Yuan appreciated marginally last week, leading EM APAC flows, though gains were insufficient to support other regional currencies.
Market flows suggest heightened caution, with outflows persisting unless currencies offer clear narratives like AI-driven growth in South Korea or intervention in Japan. Rising intervention risks and USD strength further complicate the outlook, limiting relief for broader APAC FX.
BNY analysts expect continued CNY appreciation but not at a pace that would ease pressure on neighboring currencies. Geopolitical tensions and equity concentration risks have accelerated the shift toward selective APAC exposure.