The Bank of Japan (BOJ) concludes its two-day monetary policy meeting later on Tuesday, where it is expected to keep interest rates steady and consider slowing reductions in its bond purchases from next fiscal year.
Ahead of the outcome, the yen edged a touch higher to 144.70 per dollar, reversing some of its declines from the previous session.
“Markets are now refocusing their attention to the usual economic data and events, and…the BOJ will be the next important driver of markets,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
“Attention will be on what Governor (Kazuo) Ueda says at his press conference. Markets will be particularly interested in how he categorises the inflation trends in Japan, especially in the context of heightened trade tensions.”
Japanese Prime Minister Shigeru Ishiba and U.S. President Donald Trump did not reach a tariff agreement, Fuji TV reported on Tuesday. In the broader market, the dollar extended some of its gains in a general risk-off move as ongoing tensions in the Middle East weighed on sentiment. The White House said on Monday that Donald Trump is leaving the Group of Seven summit in Canada a day early due to the situation in the Middle East, as the president has requested that the national security council be prepared in the situation room.
Trump had earlier urged everyone to immediately evacuate Tehran, and reiterated that Iran should have signed a nuclear deal with the United States.
The risk-sensitive Australian dollar fell 0.27% to $0.6507, while the New Zealand dollar eased 0.17% to $0.6049.
Against a basket of currencies, the dollar firmed slightly at 98.23.
“The developments out of the Middle East over the past few days threaten regional stability gravely,” said analysts at DBS in a note.
“The long-simmering Israel-Iran conflict reaching a major chapter should add to market stress, but so far, the view is global spillover risks are manageable.”
Still, overall moves in the currency market were largely subdued, as investors also looked ahead to a slew of central bank decisions later in the week to guide the next move in markets.
The Federal Reserve’s policy decision on Wednesday takes centre stage. Expectations are for the central bank to keep rates on hold, though focus will be on any guidance regarding the rate outlook.
“Markets anticipate two Fed rate cuts this year, but I expect zero,” said Ronald Temple, chief market strategist at Lazard.
“Investors will carefully examine the Summary of Economic Projections for signs of potential policy easing with the dot plot and macro forecasts being focal points. I expect another shift in the dot plot toward fewer rate cuts.”
Elsewhere, the euro fell 0.1% to $1.1545, while sterling eased 0.09% to $1.3563.
Trump signed an agreement on Monday formally lowering some tariffs on imports from Britain as the countries continue working toward a formal trade deal.
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