Yen weak ahead of BoJ decision, rate hike expected

The Japanese yen began the Asian trading day on Friday with a weak performance against both the US dollar and the euro. Markets exhibited a subdued mood as investors awaited an anticipated interest rate hike from the Bank of Japan (BoJ) later in the trading session. The yen depreciated by 0.1% to 156.19 yen per dollar, continuing its decline after a three-day losing streak on Thursday.

Traders anticipate the BoJ to raise interest rates to the highest level in over three decades. The yen's weakness followed Japanese inflation data released on Friday, which showed a slight shortfall of expectations in August. Market expectations indicate an 83% likelihood of a BoJ rate hike, with potential quarterly hikes following.

Analyst Chris Weston from Pepperstone Group in Melbourne suggests that the actual rate decision might have a limited impact on the yen, and attention should instead focus on the forward swaps curve and the Bank's guidance on the pace and urgency of further tightening measures. Governor Ueda's press conference will be crucial, as the market will seek confirmation of continued normalization and the urgency of any future rate adjustments.

Meanwhile, the British pound remained flat at a 2-1/2-month low against the US dollar, while the euro also stood still at US$1.1478. The Australian dollar saw a slight gain of 0.1% at US$0.7117, as the Reserve Bank of Australia's Governor warned lawmakers that inflation risks were becoming more apparent. The US dollar index held steady at 100.2100, following a brief dip from its 2-1/2-month peak on Thursday.

Traders are cautiously optimistic about a potential interest rate hike from the Federal Reserve next month, with investor confidence bolstered by Chair Kevin Warsh's efforts to assert the Fed's independence. Oil prices opened lower, with Brent crude futures falling by 1% to US$103.76 per barrel as traders reassess supply risks following Saudi Arabia and Iran-backed Houthis' recent strikes.

In the cryptocurrency market, Bitcoin experienced a slight decline of 0.1% to US$76,442.97, while Ether saw a minor drop of 0.2% to US$2,447.39.