Asia FX: Divergent paths under Hormuz scenarios – MUFG

⦿ Executive Snapshot

• What: MUFG economists outline scenarios affecting Asian currencies due to the reopening of the Strait of Hormuz.
• Who: Economists Lin Li, Michael Wan, Lloyd Chan, and Khang Sek Lee from MUFG.
• Why it matters: The reopening could stabilize Asian currencies and growth, or lead to depreciation under adverse conditions, impacting the broader Asian economy.

⦿ Key Developments

• MUFG's base case predicts the reopening of the Strait of Hormuz by end-May, easing pressures on Asian currencies.
• In the adverse scenario, a prolonged blockade could lead to a broad depreciation among Asian currencies, with KRW expected to depreciate over 8%.
• The report anticipates that inflation will remain contained, allowing most central banks to maintain a neutral-accommodative stance.

⦿ Strategic Context

• The Iran war has significantly pressured Asia’s net energy-importing currencies, notably PHP, INR, THB, and IDR, which have depreciated against the dollar since late February.
• The economic outlook for Asia suggests a softening growth in the near term but stabilizing in H2 2026, influenced by declining energy prices and shifting trade balances.

⦿ Strategic Implications

• Immediate market consequences include a potential divergence in currency performance rather than a uniform rebound across Asian currencies.
• Long-term implications may involve economic recessions in Asian economies if energy costs remain high, leading to capital outflows and significant depreciation.

⦿ Risks & Constraints

• Potential risks include regulatory challenges or geopolitical tensions that could disrupt energy supplies and impact economic stability.
• Competition among Asian currencies may intensify, especially if some economies experience higher inflation or trade balance issues compared to others.

⦿ Watchlist / Forward Signals

• Key milestones include the expected reopening of the Strait of Hormuz by the end of May, which will influence currency valuations and economic forecasts.
• Future developments signaling success or failure will revolve around energy price trends and the overall stability of the Asian economic landscape following the reopening.