Yen weak ahead of BOJ decision; rate hike expected

The yen opened the Asian trading session on Friday in a weak position against the dollar and euro, as currency markets remained cautious in anticipation of an expected rate hike from the Bank of Japan later in the day. The currency fell 0.1% to 156.19 yen per dollar, continuing its decline after a three-day losing streak on Thursday.

Traders awaited the Japanese central bank's decision to raise interest rates to the highest level in over three decades. The euro saw a 0.2% weakening of the yen, with the rate at 179.3000 yen. Swaps pricing suggests an 83% likelihood of a hike from the Bank of Japan, with additional quarterly rate hikes anticipated, according to LSEG data.

Chris Weston, head of research at Pepperstone Group in Melbourne, suggested that the actual impact of the rate decision on the yen might be limited. Instead, focus should be placed on the forward swaps curve and the bank's guidance on the speed and necessity of further tightening. Governor Ueda's press conference would be crucial, as the market would seek confirmation that further normalization remains on the table and assess whether the Bank perceives any urgency for another rate move.

The British pound held steady at a 2-1/2-month low of $1.3359 following the Bank of England's decision to keep interest rates unchanged and unexpectedly pause government bond sales for six months. The euro stayed flat at $1.1478. The Australian dollar strengthened by 0.1% to $0.7117 as the Reserve Bank of Australia's Governor Michele Bullock warned lawmakers that inflation risks identified by policymakers seemed to be materializing.

The New Zealand dollar slipped 0.1% to $0.5724. The US dollar index, which gauges the greenback's strength against a basket of six currencies, remained unchanged at 100.2100 after edging away from a 2-1/2-month high on Thursday. Traders anticipated a possible rate hike from the Federal Reserve next month, as investors grew more confident in Chair Kevin Warsh's efforts to restore the central bank's independence from the White House.

Fed funds futures suggested a 53% probability of a quarter-point hike at the Fed's upcoming two-day meeting, compared to a 27.2% chance a week prior, according to the CME Group's FedWatch tool. Oil prices opened lower, with Brent crude futures declining 1% to $103.76 per barrel as traders reassessed supply risks following a series of attacks by Iran-backed Houthis against Saudi Arabia and Yemen.

China urged Tehran to assist in curbing the Houthis' military campaign over the past week, according to three Iranian sources familiar with the situation. In the cryptocurrency market, Bitcoin experienced a 0.1% decline to $76,442.97, while Ether dropped 0.2% to $2,447.39.