Central banks in Asia face a dilemma in 2025.

An inexorable rise in the US dollar has sent Asian currencies such as the Japanese yen, South Korean won, Chinese yuan and Indian rupee to multi-year lows against the greenback.

While a cheaper currency could in principle make exports competitive just as President-elect Donald Trump threatens to impose tariffs, central banks in Asia would need to assess their impact on imported inflation and head off speculative bets on continued weakness in their currencies could complicate policymaking, analysts said.

The US dollar has strengthened since Trump’s victory in the 2024 presidential election, rising around 5.39% since the November 5 election in the US.

One reason for the U.S. dollar’s strength is the measures Trump promised during the campaign, including tariffs and tax cuts that economists see as inflationary.

At their December meeting, federal officials expressed concern about inflation and the impact that President-elect Donald Trump’s policies could have, and suggested they would move more slowly on rate cuts because of uncertainty, according to minutes released Wednesday emerges.

The Fed’s reassessment of its monetary policy outlook has widened the yield gap between U.S. and several Asian bonds.

That interest rate differential has reduced the attractiveness of lower-yielding assets, causing major Asian currencies to fall and prompting some central banks, including the Bank of Japan and the Reserve Bank of India, to intervene.

James Ooi, market strategist at online broker Tiger Brokers, told CNBC that a strong U.S. dollar would make it harder for Asian central banks to manage their economies.

A stronger U.S. dollar is likely to “pose challenges for Asian central banks by increasing inflationary pressures from higher import costs and straining their (central banks) foreign reserves as they seek to support their currencies through interventions,” Ooi told CNBC by email .

“If a country is struggling with high inflation and a depreciating currency, cutting interest rates to stimulate economic growth can be counterproductive,” Ooi added.

China’s onshore yuan hit a 16-month low of 7.3361 on Jan. 7, pressured by rising U.S. Treasury yields and a stronger dollar.

A weaker yuan would reportedly make Chinese exports more competitive and hopefully boost growth in Asia’s largest economy.

But Lorraine Tan, head of Asia equity research at Morningstar, said a stronger U.S. dollar would limit the People’s Bank of China’s ability to cut interest rates without risking increased capital outflows and also provide the domestic economy with more monetary policy flexibility .

China has been struggling to shore up its economy since last September with several stimulus measures, including interest rate cuts and support for stock and real estate markets.

Most recently, the country expanded its consumer trade-in program, which aims to boost consumption through device upgrades and subsidies.

“However, it is the government spending side that needs to pick up to support growth in China,” Tan added.

This view was echoed by Ken Peng, head of Asia Pacific investment strategy at Citi Wealth. He said the Chinese government should issue more long-term bonds to finance its economic stimulus instead of cutting interest rates.

“(China) no longer needs to pursue monetary policy. So it shouldn’t be a question of PBOC. It should be a MOF (Ministry of Finance) issue,” Peng said.

Furthermore, in the often zero-sum world of export competitiveness, a pronounced weakness in the yuan could make it more difficult for other Asian economies to increase the attractiveness of their products and services to foreign buyers.

Citi Wealth said in its 2025 outlook report that a sharp devaluation of China’s currency could hurt economies that directly compete with or export to China, such as South Korea, Taiwan and others in Southeast Asia.

The Bank of Japan spent over 15.32 trillion yen ($97.06 billion) to support the currency throughout 2024 after the yen fell to a decade-long low in July, hitting a low of 161, 96 reached.

Still, the currency is at around 158 against the greenback, its weakest level since July lows.

Japanese financial officials have repeatedly warned of “unilateral” and “volatile” moves in the yen, most recently on Jan. 7.

To be sure, a strong dollar could partially contribute to the BOJ’s goals.

After battling deflation for decades, inflation in Japan has exceeded the Bank of Japan’s 2 percent target for 32 consecutive months. The BOJ has acknowledged that weakness in the yen could lead to a rise in imported inflation.

The challenge would be to ensure that prices and wages do not rise faster than the levels with which the BOJ is comfortable.

Morningstar’s Tan said the greenback’s strength added pressure on the BOJ to raise interest rates to support the yen and reduce inflation risks.

According to a January 6 report from Yonhap, South Korea’s central bank recently intervened to support the won. Although the specific amount was not disclosed, it was enough to send the country’s foreign reserves to a five-year low.

The won has steadily weakened against the dollar since Trump’s election victory, reaching about 1,476 against the greenback in December, its weakest level since 2009.

The Bank of Korea appears to be prioritizing stimulating domestic growth despite a weakening won, with the central bank surprisingly deciding to cut interest rates by 25 basis points at its last meeting in November.

“Although exchange rate volatility has increased… downward pressure on economic growth has increased. “The Board therefore concluded that it is appropriate to further reduce the base interest rate and mitigate the downside risks to the economy,” it said in its statement.

However, all of these measures were overshadowed by uncertainty when President Yoon Suk Yeol declared and then lifted martial law in early December and was subsequently impeached.

The BOK called an emergency meeting on December 4 and promised to provide “a sufficient amount of liquidity” until financial and foreign exchange markets stabilize. These measures apply until the end of February.

The latest major Asian currency to experience this is India rupee The price fell to a record low of 85.86 on January 8 due to pressure from the strong dollar and selling by foreign portfolio investors in October and November.

India has been grappling with inflation that breached the RBI’s upper tolerance limit of 6% in October to reach 6.21%, although it has moderated since then.

This comes at a time when the country is facing slowing growth. India’s latest GDP reading came in at 5.4% in the second fiscal quarter ended September, falling short of expectations and marking the lowest level since the last quarter of 2022.

At its last monetary policy meeting in December, the RBI, in a separate decision, kept the interest rate at 6.5%, with two board members voting for a 25 basis point cut.

Should India decide to cut interest rates to boost growth – which would weaken the rupee – the RBI is well equipped to deal with a possible sudden outflow of foreign funds and a sharp fall in the rupee.

Citi Wealth said in its 2025 forecast report that “the central bank’s large foreign exchange reserves have provided greater stability to the Indian rupee.”

Citi’s Peng also describes the rupee as “one of the most stable currencies in the world,” adding that “the only currencies that are less volatile than the Indian rupee are the currencies pegged to it, such as the Hong Kong dollar. And that should come as a relief to many foreign investors who might be interested in this market.”