The yen was held at the mercy of soaring U.S. Treasury yields on Friday ahead of a closely watched rate decision by the Bank of Japan (BOJ), while the dollar stood near a six-month peak on the prospect of higher-for-longer U.S. rates.
The Japanese currency JPY=EBS was last marginally lower at 147.6 in early Asia trade, languishing near the previous session's more than 10-month low of 148.465.
The BOJ is due to announce its interest rate decision later on Friday at the conclusion of its two-day policy meeting, capping off a week packed with central bank policy decisions, and expectations are for the BOJ to stand pat on its ultra-easy monetary settings.
"Whilst we feel more confident that (the BOJ) can achieve their 2% (inflation) target, we believe there won't be any changes until 2024, with key focus the Shunto (spring wage) negotiations starting next year," said Daniel Hurley, portfolio specialist for emerging market and Japanese equities strategy at T. Rowe Price.
Data on Friday showed Japan's core inflation was steady in August and stayed above the central bank's 2% target for a 17th straight month.
The yen was also kept under pressure as a result of elevated U.S. Treasury yields, which scaled multi-year highs in the previous session as markets reeled from a hawkish pause by the Federal Reserve on Wednesday.
The 10-year Treasury yield US10YT=RR , which the dollar/yen pair tends to track, peaked at 4.4980% on Thursday, its highest since 2007, while the two-year Treasury yield US2YT=RR scaled a 17-year top of 5.2020% the same day.
The U.S. dollar likewise rode Treasury yields higher and against a basket of currencies =USD , the greenback touched a more than six-month high of 105.74 in the previous session. The index was last steady at 105.39.
Against a stronger dollar, the Aussie AUD=D3 fell 0.1% to $0.6410 and was headed for a weekly loss of about 0.3%, reversing some of its gains made last week.
The New Zealand dollar NZD=D3 similarly slipped 0.06% to $0.5928, though eyed a weekly gain of close to 0.5%.
While the Fed kept interest rates steady this week, it signalled the possibility of another hike this year, with rates to be kept significantly tighter through 2024 than previously expected.
"We like the U.S. dollar given this backdrop," said Ray Sharma-Ong, investment director of multi-asset solutions at abrdn.
"The U.S. dollar will do well, supported by the hawkishness of the Fed, the reduction in the expected number of rate cuts the Fed will deliver in 2024, U.S. growth resiliency and our expectations of slower growth in the Euro area relative to the U.S."
The euro EUR=EBS dipped 0.07% to $1.0655, having fallen to a six-month low of $1.0617 in the previous session.
Sterling GBP=D3 was meanwhile 0.02% lower at $1.2293, having similarly slid to a roughly six-month low of $1.22305 on Thursday, after the Bank of England (BoE) halted its long run of interest rate increases a day after Britain's fast pace of price growth unexpectedly slowed.
That marked the first time since December 2021 that the BoE did not increase borrowing costs and left traders scaling back their expectations of further rate increases by the central bank.
"With inflation seemingly falling but still very elevated, and with growth almost stagnant, markets were likely going to find any decision fell short of what was needed, unless the bank was decisive in its hawkish stance, delivering a hike and guaranteeing more to come," said Daniela Hathorn, senior market analyst at Capital.com.
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