SINGAPORE, July 29 — Most emerging Asian currencies rose today as the dollar  fell after the Bank of Japan’s modest policy easing fell short of market expectations.

Regional units were poised to enjoy monthly gains as global investors flocked to Asian stocks and bonds in search of higher yields.

The Bank of Japan expanded monetary stimulus through a modest increase in purchases of exchange-rated funds (ETF), bowing to pressure from the government and financial markets for action to spur growth and inflation.

However, a lack of bolder action disappointed investors and lifted the yen by more than 2 percent. With the yen’s strength, the dollar index, the greenback’s performance against a basket of six major currencies, fell to a two-week low.

Before the decision, sources familiar with the BOJ’s thinking had said a sizeable increase in bond purchases, combined with an expansion of risky assets such as exchange-traded funds, would be the most likely option if the BOJ wanted to shock markets with a large-scale easing.

"The BOJ did almost nothing and FX markets took it as a factor in the dollar’s weakness,” said Jeong My-young, Samsung Futures research head in Seoul.

"The decision dented expectations of wider differentials in monetary policies between the U.S. and other developed countries. Asian currencies may strengthen further on the dollar’s weakness.”

The Federal Reserve on Wednesday gave no firm indication of an interest rate hike in its next policy meeting in September, although the U.S. central bank said it was less concerned over possible shocks to the economy.

Today, the Taiwan dollar hit its strongest in more than 11 months after data showed the local economy returned to on-year growth in the second quarter. The island’s stock market was on the course to see the largest inflows in a decade.

South Korea’s won rose to an one-year high as foreign investors kept buying Seoul shares.

The Singapore dollar gained on the yen’s strength and month-end corporate demand.

Yield hunting

Most emerging Asian currencies were set to post monthly gains as global central banks are expected to print more money in the wake of the Britain’s decision to leave the European Union last month.

"Global monetary conditions remain easy. The hunt for higher yields should continue,” said Christopher Wong, a senior FX strategist for Maybank in Singapore, adding the Indonesian rupiah and the Indian rupee may be key beneficiaries.

The won and the Singapore dollar could also appreciate further on the yen’s strength, Wong said.

The South Korean currency led gains among emerging Asian currencies with a 2.8 per cent appreciation against the dollar so far this month.

Foreign investors were net buyers in Seoul’s main stock market every session this month except for one day, scooping up a net 4.0 trillion won ($3.6 billion) of equities, the Korea Exchange data showed.

Taiwan’s dollar has risen 1.3 per cent so far this month on stock inflows. Foreign investors purchased T$168.9 billion ($5.3 billion) of shares in the first 28 days of July, which would be the largest monthly inflow since April 2006.

The rupiah has advanced 0.9 per cent this month as foreign investors kept buying Indonesia’s shares and bonds.

Investors welcomed President Joko Widodo’s decision to bring the World’s Bank managing director Sri Mulyani Indrawati back to the finance minister. The appointment was seen accelerating economic reforms.

The Thai baht has gained 0.8 per cent so far this month on capital inflows, while the Indian rupee has risen 0.7 percent.

By contrast, the Malaysian ringgit has lost 0.6 per cent so far July. — Reuters