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Investing.com-- Most Asian currencies firmed on Thursday, with the Japanese yen in the lead as the dollar was pressured by markets pricing in an interest rate cut by the Federal Reserve in September.

The yen was boosted by increased speculation over a rate hike by the Bank of Japan, after U.S. Treasury Secretary Scott Bessent warned that the BOJ was falling behind in its efforts to curb inflation.

Broader Asian markets benefited from improving risk appetite and a softer dollar, as markets priced in an almost 100% chance the Fed will cut rates in September.

But bigger risk-on moves were held back by some caution over U.S. tariffs, especially as India raced to stave off steep duties on its exports to the country.

Japanese yen gains on BOJ rate hike speculation

The Japanese yen was the top performer in Asia, with the USDJPY pair sliding 0.5% to 146.72 yen.

The yen was boosted by heightened speculation over the BOJ’s plans to hike interest rates, especially after Bessent said the central bank will do so.

Bessent told Bloomberg the BOJ was “behind the curve” on inflation, and will need to raise rates.

His comments contrast those from BOJ Governor Kazuo Ueda, who has largely dismissed concerns that the BOJ lagged in raising rates to quash sticky inflation. Ueda has also repeatedly signaled that the central bank will hike rates in tandem with higher inflation.

But a series of soft inflation readings in recent months raised doubts over just when the BOJ could hike next. Analysts say the BOJ will be most likely to hike rates for a fourth time since early-2024 in September this year.

Japanese second-quarter gross domestic product data is due on Friday, and is set to offer more cues on the country. While inflation has eased in recent months, core prices have still remained above the BOJ’s 2% annual target.

Dollar weak as markets confirm Sept rate cut

The dollar index and dollar index futures both drifted lower on Thursday, extending overnight losses as markets priced in a greater chance the Fed will cut interest rates in September.

Investors were seen pricing in a nearly 97% chance the Fed will cut rates by 25 basis points in September, amid increasing signs of cooling U.S. inflation and jobs growth, CME Fedwatch showed.

The prospect of lower U.S. rates boosted most Asian currencies.

The Chinese yuan’s USDCNY fell slightly, extending declines from earlier this week after the U.S. and China agreed to extend their trade truce by 90 days.

Focus is now on a string of key Chinese economic readings due on Friday, including industrial production and retail sales.

The Australian dollar’s AUDUSD pair rose marginally after data showed the country’s labor market grew slightly below expectations in July. The print furthered the notion that Australia’s labor sector was cooling, which stands to invite more interest rate cuts by the Reserve Bank.

The Singapore dollar’s USDSGD pair was flat, while the South Korean won’s USDKRW rose 0.4%.

The Indian rupee’s USDINR pair steadied after falling sharply from record highs hit last week. But sentiment towards India remained clouded by the prospect of 50% U.S. tariffs against the country, over its purchase of Russian oil.

U.S. President Donald Trump is set to meet Russian counterpart Vladimir Putin in Alaska on Friday to discuss the Ukraine war, with the meeting also expected to address Russia’s oil industry.