Yen weak ahead of BOJ decision; rate hike expected

The yen started Friday's Asian session on the back foot, weakening 0.1% to 156.19 per dollar and 0.2% to 179.3000 against the euro. Currency markets stayed quiet ahead of an expected Bank of Japan rate increase later in the day, which would take borrowing costs to their highest point in more than three decades. According to Business Recorder, swaps pricing suggests traders see an 83% chance of a hike, with further quarterly increases expected afterwards.

Chris Weston of Pepperstone Group in Melbourne said the announcement itself could carry little weight for the currency, since markets have largely priced it in. He said attention should instead turn to forward swap curves and the central bank's guidance on how quickly it might tighten again, with Governor Ueda's press conference seen as crucial.

The pound stood at $1.3359, a 2-1/2-month low, after the Bank of England kept rates unchanged and unexpectedly paused government bond sales for six months. The Australian dollar firmed 0.1% after Michele Bullock, the RBA governor, told parliamentarians that inflation dangers are starting to emerge. Fed funds futures now imply a 53% chance of a quarter-point hike at the Federal Reserve's meeting next month, up from 27.2% a week ago.