Focus this week is also on Australian inflation and Chinese purchasing managers index data, due in the coming days

The yen firmed on Tuesday after the Bank of Japan held interest rates but flagged future hikes on increasing inflation risks.

Broader Asian currencies mostly weakened, while continued gains in oil prices also kept markets on edge.

Focus this week is also on Australian inflation and Chinese purchasing managers index data, due in the coming days.

The yen’s USD/JPY pair dropped 0.2% and was close to breaking below the 159 yen level, after the Bank of Japan held interest rates steady at 0.75%.

But the hold was far from unanimous, with three members of the bank’s nine-member rate-setting board calling for a rate hike.

The BOJ signalled that it was prepared to hike interest rates further, especially as it cut its economic growth forecasts and sharply raised its inflation expectations for the fiscal year.

The central bank expects inflation to rise well above its 2% annual target in 2026, with the oil price shock from the Middle East war being a key driver of this trend.

Capital Economics analysts said the BOJ’s hawkish stance made a 25 basis point hike in June appear likely.

Broader Asian currencies largely weakened amid little relief from uncertainty over the Iran war.

Oil prices extended their recent rally on Tuesday, with the Strait of Hormuz remaining shut.

Asian currencies were rattled by higher oil prices and fears of an extended deadlock in the Middle East.

The oil-sensitive Indian rupee’s USD/INR pair gained 0.3% and pushed further above the 94 rupee level, while the won’s USD/KRW pair dropped 0.1%.

The Australian dollar’s AUD/USD pair was flat ahead of key first-quarter consumer inflation data due on Wednesday.

The yuan’s USD/CNY pair added 0.1%, with focus squarely on upcoming PMI data for April, due on Thursday.