The Japanese yen weakened against the US dollar on Tuesday. It gave up further gains after last week’s safe-haven rally. Improved investor risk appetite and a weaker euro supported the dollar ahead of several major central bank decisions.

The yen fell 0.16% to 157.73 per dollar. It moved further away from last week’s one-month high. Investors are now watching the Bank of Japan (BOJ), which will announce its policy decision on Friday. The yen also lost ground on Monday.

Bank of Japan Rate Decision in Focus

Markets expect the BOJ to keep its policy rate at 1.25% after its two-day meeting ends on Friday. However, investors will look for signs that the central bank remains ready to raise borrowing costs as inflation pressures persist.

Japan’s service-sector inflation gauge rose 3.7% year on year in September, according to data released on Tuesday. The increase points to persistent price pressures and could support further rate hikes.

MUFG analysts expect the BOJ to conclude that underlying consumer price inflation remains broadly consistent with its 2% price stability target.

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However, the analysts said that reaching the target once would not be enough. They expect the BOJ to shift its focus from mainly monitoring downside inflation risks to assessing risks in both directions.

The yen ranked among the strongest-performing major currencies last week. Concerns about artificial intelligence valuations and stock market volatility encouraged investors to seek safer assets.

Markets now see slightly better-than-even odds of a BOJ rate hike in December. Ebury analysts said the yen could recover if Governor Kazuo Ueda adopts a hawkish tone.

The analysts still favour another rate increase at the BOJ’s final meeting of the year. However, they remain unsure whether the central bank will signal that move in advance.

Global Central Banks Prepare Rate Decisions

Five major central banks will announce policy decisions this week, making the outlook for global borrowing costs a key concern for investors.

The US Federal Reserve will conclude its two-day meeting on Wednesday. Markets expect it to leave interest rates unchanged. The European Central Bank will also announce its decision on Thursday, with investors expecting it to maintain its policy rate at 2.5%.

Meanwhile, markets expect the central banks of New Zealand and Canada to raise interest rates this week.

These decisions could influence currency movements, borrowing costs and investor sentiment worldwide.

Dollar Holds Near One-Week High

The US dollar index stood at 102.04 on Tuesday, near a one-week high. A technology-led rebound on Wall Street boosted investor appetite for risk and supported the greenback.

Investors also awaited earnings from major technology companies and developments surrounding the US midterm elections.

News involving artificial intelligence company Anthropic and Meta Platforms renewed interest in the AI sector. Anthropic’s reported initial public offering filing and Meta’s reported $95 billion equity plan helped revive the AI trade.

The dollar also benefited from weakness in the euro. The single currency fell to a nearly two-week low against the greenback as concerns about France’s public finances weighed on investor confidence.

The euro traded at $1.1165, down about 1.4% this month.

A sell-off in French government bonds pushed the country’s debt-risk premium to its highest level since the 2011 sovereign debt crisis. The move renewed concerns about financial stress across the eurozone.

Brazilian Real Stabilises After Sharp Fall

Elsewhere, the Brazilian real stabilised after a sharp decline against the US dollar. The supplied report linked the currency’s fall to the reported presidential election result involving President Luiz Inácio Lula da Silva and Senator Flávio Bolsonaro, the eldest son of former president Jair Bolsonaro.