Asia’s move away from the dollar is gaining traction, not only through institutional asset shifts but also via aggressive hedging by global investors seeking to protect against currency volatility.
Much of the change is driven by non-dollar reserve-rich economies such as Singapore, Taiwan, and South Korea. When the U.S. dollar weakens, investors in these countries hedge by selling USD assets and buying their local currencies—a strategy that in 2025 has fueled significant appreciation in these markets.
Recent data shows Japanese life insurers and Taiwanese pension funds increasing their hedge ratios dramatically. Nomura estimates that hedge ratios rose to ~48% for Japanese insurers and nearly 70% for Taiwanese funds . Such moves intensify demand for local currencies at the expense of the dollar.
Hedge funds and pension plans in Asia are also allocating more to local-currency debt and equities, while reducing long-dollar positions. A Reuters market update noted that Asian stock markets rallied even as the dollar slid, highlighting a dissociation between traditional USD correlations and asset performance .
This wave of de-dollarization has put pressure on U.S. Treasury demand. Rising hedging costs are curbing overseas investment in U.S. bonds. Analysts from the Wall Street Journal observed that investors in Europe and Japan now favor domestic bonds over U.S. Treasuries due to unattractive returns after hedging.
As HSBC and Barclays report, foreign central banks and asset managers are reducing their dollar exposure—not from ideological opposition, but in response to shifting financial calculus triggered by tariff uncertainty, a depreciating dollar, and rising hedge costs.
Despite this momentum, the dollar’s dominant position remains largely intact. Its unparalleled liquidity and depth in global markets mean alternatives will take time to consolidate. Still, the growing trend toward hedging and diversifying assets may gradually diminish the appeal of the dollar as a global reserve.
