Asian markets, yen drop ahead of key Bank of Japan decision

HONG KONG, China — Asian markets and the yen weakened against the dollar Friday ahead of a policy decision by the Bank of Japan, while the euro remained under pressure as critical French parliamentary elections approach.

Regional investors are trading cautiously, even after a succession of record Wall Street highs fuelled by promising inflation data and a Federal Reserve prediction that it would cut rates this year.

Eyes are now on Tokyo, where the Japanese central bank is expected to take a fresh step away from its ultra-loose monetary policy by starting to slowly reduce its vast hoard of government bonds.

The BoJ has been considering its next move to normalise monetary policy after years of keeping borrowing costs at minuscule levels, most notably by lifting interest rates out of negative territory in March -- the first hike in 17 years.

Officials are not expected to lift rates Friday but the reduction of bond holdings -- known as quantitative tightening -- is seen as the next move, with the weakness of the yen also playing a role in discussions.

The Japanese currency is sitting just off the 34-year low against the dollar touched in April -- following a BoJ meeting -- that forced authorities to step into forex markets to provide support.

Shunsuke Kobayashi, chief economist of Mizuho Securities, told AFP that reducing bond holdings would help the BoJ trim its debt ahead of potential future rate hikes.

At the same time, the bank is facing "pressure from the prime minister's office to address the cheap yen", he said.

Hiroshi Namioka, of T&D Asset Management, said: "Doing nothing at all could become a push for further depreciation of the yen.

"This isn't a situation where the BoJ can just sit tight."

Equity traders are keeping a close eye on the announcement as any tightening would lift Japanese yields and push up rates, making assets more attractive to anyone looking for better returns.

In early business, Tokyo was marginally lower, while the yen was also slightly down against the dollar.

There were also losses in Hong Kong, Shanghai, Sydney, Singapore, Wellington, Manila and Jakarta, though Seoul and Taipei rose.

The BoJ announcement comes after the Fed this