Asia FX – Divergent paths under Hormuz scenarios – MUFG

MUFG economists Lin Li, Michael Wan, Lloyd Chan and Khang Sek Lee outline a base case where the reopening of the Strait of Hormuz by end‑May eases pressures on Asian currencies. They see Asia growth softening near term but stabilizing in H2 2026, with inflation contained and most central banks keeping neutral‑accommodative stances. They also sketch an adverse scenario with broad Asia FX depreciation.

Base and adverse scenarios for Asia FX

“A base case, where the Iran war and the Hormuz disruption unwind approaching end of May, is our core case. Asia growth softens slightly in near term but stabilizes into 2H2026 as declining energy prices ease the drag on current account, corporate margins and real income. Inflation will remain largely contained and allows most central banks to maintain their neutral-accommodative stance.”

“Iran war has exerted significant pressure on Asia’s net energy‑importing currencies, with PHP, INR, THB and IDR depreciating most against the dollar since late February. However, in our base case, while reopening of the Strait of Hormuz and the associated decline in oil prices would unwind some pressures, we expect a divergent performance across Asian currencies, rather than a unanimous rebound in remaining Q2.”

“Under the Adverse Scenario transit the Strait of Hormuz, over time, higher energy costs would worsen the terms of trade, pressure on trade balance, and supply shortages would intensify and weigh on industrial activity and overall economy. A prolonged blockade of the Strait of Hormuz brings the risks of recessions for Asian economies, causing capital outflow, creating pressure for significant pressure. In the Severe scenario, we expect a broad base depreciation among Asian currencies, with some like KRW to depreciate more than 8%, and INR and PHP to depreciate more than 5%, and a relatively mild 3% depreciation for CNY against the dollar.”

Today Markets