Investing.com - The Japanese yen traded slightly higher against its U.S. counterpart ahead of the highly anticipated policy decision from the Bank of Japan (BOJ) due later in the day.
The USD/JPY pair was 0.08% lower at 110.97 by 12:02AM ET (04:02 GMT). All eyes would be on the BOJ rate decision and outlook report due later today as earlier reports suggested that the central bank might adjust its stimulus program. More specifically, analysts believed the BOJ could be trimming its 80 trillion yen quantities easing program or tweaking yield curve control tolerance thresholds.
Any winding back of stimulus could push the Japanese yen higher and undermine efforts to boost domestic inflation that is well below the central bank’s 2% target, analysts said.
"Looking at the JGB 10-year yield, it seems that the markets are gradually pricing in the possibility of the policy changes this week," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
"If there is no concrete outcome this time, the BOJ will order the BOJ staff to consider measures to mitigate the negative consequences from the past accommodative policy by the next meeting."
Looking ahead, the Japanese currency could also potentially be impacted by other economic events coming up this week, including monetary policy announcement due from the U.S. Federal Reserve and the Bank of England.
Meanwhile, the U.S. Dollar Index, which tracks the greenback against a basket of other currencies, was little changed at 94.13 on Tuesday, off a one-year high of 95.656 touched on July 19.
Elsewhere, the Chinese yuan weakened, with the USD/CNY pair rose 0.07% to 6.8295. The People's Bank of China (PBOC) sets the Yuan reference rate at 6.8165 versus the previous day's fix of 6.8131 on Tuesday.