Asian central banks turn to creative tools to defend currencies without draining reserves

Central banks across emerging Asia are broadening their currency defense playbooks, moving beyond traditional foreign-exchange intervention to preserve dwindling reserves as West Asia tensions, elevated oil prices, and higher-for-longer U.S. interest rates continue to weigh on the region's currencies.

New Tools to Attract Dollar Inflows

India has turned to its 35-million-strong diaspora to shore up the rupee, with the Reserve Bank of India opening a special deposit window on June 8 that allows banks to offer overseas Indians up to 7% on dollar fixed deposits. The program had attracted roughly $10 billion in inflows by mid-July, according to Reuters, with economists estimating it could ultimately draw $30 billion to $60 billion. The Business Standard, citing Bloomberg, reported that total diaspora-linked inflows have now approached $40 billion, underpinning the rupee's recovery from a record low in May.business-standard+2

South Korea has pushed to accelerate corporate dollar repatriation and activated the National Pension Service's foreign-exchange hedging requirements, helping the won to its largest monthly gain since 2022. Indonesia drew $1.6 billion in bond inflows over two months by offering incentives to foreign funds, while Taiwan has instructed exporters to sell dollars during periods of currency weakness.mufgresearch+1

Coordinated Intervention Sets a Precedent

The most dramatic development came on July 31, when Japan and the United States carried out their first joint yen-buying intervention since 2011. Japan may have spent as much as $36.58 billion during the operation, which pushed USD/JPY below 155 after the yen had fallen to 40-year lows. According to BofA Global Research, Japan funds such purchases from its $1.3 trillion reserve portfolio, but at intervention scales exceeding ¥10 trillion over several days, the Ministry of Finance would likely need to sell securities or tap the Federal Reserve's FIMA repo facility.investing+2

Washington reportedly sold euros rather than dollars to purchase yen, raising questions about the sustainability of further operations. Analysts have since lowered their year-end USD/JPY forecast to 149 from 152.investing

Balancing Stability and Firepower

The measures supplement rather than replace traditional tools. Bank Indonesia has raised interest rates by 100 basis points since May and continues to intervene directly, while the Philippines has hiked rates by 50 basis points and the Bank of Korea tightened policy for the first time in three years.business-standard

"There are a variety of motivating factors, but they essentially come down to preserving FX reserves as best as possible amid structurally higher volatility and uncertainty," said Claudio Piron, head of Asia FX and rates strategy at BofA Global Research. "Attracting inflows is a key strategy to achieve this goal."business-standard

Indonesia's rupiah, the Indian rupee, and Thailand's baht remain among the five worst-performing emerging-market currencies in 2026, even as the region's trade surpluses, exports, and equity markets remain relatively healthy. Michael Wan, senior currency analyst at MUFG Bank Mitsubishi UFJ Financial Group, Inc. ↘ 0.13%, said Asian central banks are "keeping more firepower given the greater uncertainty around global events," adding that attracting more dollars "will be one prong of the strategy".business-standard