The yen also gained support amid speculation about Tokyo's possible intervention in the foreign exchange market, after ministers expressed concern about the steady sales of the national currency.

The weakness of the yen, which is a component of the DXY dollar index, was one of the key factors in the stability of the US currency this week, despite continued weak sentiment towards the US economy amid the ongoing government shutdown.

Other Asian currencies remained in a narrow range and showed restrained weekly dynamics under pressure from a stronger dollar.

The yen is recovering some of its losses after strong inflation data and talk of intervention

The Japanese yen strengthened slightly on Friday, with the USD/JPY pair falling by almost 0.3% from an eight-month high.

The producer price index for September, released earlier in the day, turned out to be higher than expected, indicating a potential increase in overall inflation last month.

These data have caused some uncertainty about the Bank of Japan's plans to raise rates, given that the central bank is committed to raising interest rates in parallel with inflation.

However, the Bank of Japan is expected to face increased resistance from the government regarding its plans to raise rates, especially given that the post of prime minister will be occupied by a supporter of fiscal stimulus, Sanae Takaichi.

Takaichi's election as leader of the ruling Liberal Democratic Party triggered a sharp drop in the yen this week as markets bet on increased fiscal spending and stimulus policies under her government.

The yen has lost almost 4% this week, marking its steepest drop since October 2024.

However, the excessive weakness of the yen has provoked speculation about possible government intervention in the currency markets. Japanese Finance Minister Katsunobu Kato reinforced these speculations, saying on Friday that the government was concerned about "unilateral, rapid movements" in the currency markets.

Kato's comments also provided some support to the yen.

Dollar prepares for strong week, Asian currencies unchanged

The dollar index and dollar index futures declined by about 0.1% and 0.2%, respectively, during Asian trading, but rose by more than 1.5% over the week. The dollar index also reached a two-month high.

Dollar purchases were mainly due to the rejection of the yen, while the weakness of the euro, another component of the dollar index, also favored the US currency. The euro has fallen this week as traders worry about the deepening political crisis in France.

While traders remain confident that the Fed will continue to cut interest rates in the coming months, there has been some uncertainty this week about how low rates will fall. The ongoing government shutdown has delayed the release of several key U.S. economic data, adding to uncertainty about the world's largest economy.

The stability of the dollar led to the fact that most Asian currencies traded in a narrow range against the US currency on Friday.

The Chinese yuan USD/CNY pair declined slightly, as did the Singapore dollar USD/SGD pair.

The Australian dollar AUD/USD pair – usually seen as an indicator of risk appetite in Asia – rose 0.2%, while the South Korean won pair USD/KRW fell 0.1% as trading resumed after a week-long holiday.

The Indian Rupee USD/INR pair declined 0.1%, with the Reserve Bank believed to be intervening in the currency markets to prevent the currency from weakening to 89 rupees per dollar.