SHANGHAI: The Japanese yen eased against the US dollar on Tuesday, further eroding last week's safe-haven gains, underpinned by a risk-on mood and a weaker euro ahead of key central bank meetings this week that will influence the global rates outlook.
The yen was 0.16% weaker at 157.73 per dollar, inching further away from the one-month high it touched last week ahead of the Bank of Japan policy decision later this week. The yen had lost ground on Monday too.
The BOJ is set to keep interest rates steady at 1.25% in a two-day meeting concluding on Friday, but signal its readiness to continue raising borrowing costs on mounting price pressures.
A key gauge of Japan's service-sector inflation rose 3.7% in September from a year earlier, data showed on Tuesday, a sign of increasing price pressures that will likely keep the central bank on track for further interest rate hikes.
"We expect the BOJ will conclude that the underlying rate of consumer price inflation is at a level generally consistent with the 2% price stability target," analysts at MUFG said in a note.
However, simply touching the target once is not enough, the analysts said, adding that the BOJ will now shift from a focus on the downside risks to inflation to a stance of monitoring risks in both directions.
The yen was among the best-performing major currencies last week, as AI jitters in the equity market spurred a haven rush into the currency.
Markets price slightly better-than-even odds of a December BOJ hike, so there is plenty of room for a rebound in the yen should Governor Ueda strike a hawkish note, said Ebury analysts in a note.
"We still favour another hike at the last meeting of the year, though whether the BOJ will be prepared to commit to that just yet is unclear."
Apart from the BOJ, four other major central banks will announce policy decisions this week. The BOJ's meeting follows that of the Fed, which is seen skipping a hike at its two-day meeting concluding on Wednesday.
The European Central Bank is also set to keep rates unchanged at 2.5% on Thursday. New Zealand's and Canada's central banks are expected to raise rates this week.
Dollar firms on risk-appetite revival
The dollar index held steady near a one-week high on Tuesday at 102.04 as a tech-led rebound on Wall Street revived appetite for risk, while investors await megacap earnings and the US midterm elections.
Risk appetite returned overnight after Anthropic's IPO filing and Meta's US$95 billion equity plan rekindled the artificial intelligence trade.
The dollar was also underpinned by a weaker euro, which fell to a near two-week low against the greenback as worries over France's fiscal health piled pressure on the single currency. The euro last fetched US$1.1165, down about 1.4% this month.
A selloff in French government bonds that drove the country's debt-risk premium to its highest since the 2011 sovereign debt crisis has rekindled concerns about financial stress across the euro zone.
The Brazilian real stabilised after it fell sharply against the US dollar after president Luiz Inacio Lula da Silva won a historic fourth term on Sunday against senator Flavio Bolsonaro, the eldest son of former president Jair Bolsonaro.