On Friday, the major currencies in the foreign exchange market remained subdued amid thin year-end trading. The U.S. dollar lingered close to its 12-week lows as investors evaluated Japanese economic data and considered the implications of potential future interest rate cuts in the United States. Trading volumes in the Asian and European foreign exchange markets have been subdued, as numerous investors are currently on holiday.

The U.S. Dollar Index, reflecting the performance of the greenback against a selection of key currencies, remained relatively unchanged during the Asian trading hours, hovering close to its lowest point since early October. The dollar has depreciated in response to increasing anticipations that the Federal Reserve will implement additional interest rate reductions in 2026 as inflation subsides. The decline in U.S. Treasury yields has exerted pressure on the dollar, offering a degree of support to Asian currencies amidst a lackluster trading atmosphere.

In Japan, the yen’s USD/JPY pair experienced an increase of 0.3% by 05:10. Data released on Friday indicated that consumer inflation in Tokyo moderated in December compared to the prior month, yet it continued to exceed the Bank of Japan’s target, thereby maintaining expectations for additional rate hikes. The data supported the perspective that the BOJ continues to follow a gradual trajectory toward policy normalization, despite the ambiguity surrounding the pace of tightening.

Additional figures indicated that Japan’s industrial production experienced a decline in November, underscoring persistent weakness in the manufacturing sector in light of subdued global demand. In contrast, retail sales increased, indicating strength in household consumption. The mixed data resulted in the yen remaining within a constrained trading range. In Europe, the EUR/USD pair experienced a decline of 0.1%, while the GBP/USD pair saw a decrease of 0.2%.