By Rae Wee

SINGAPORE (Reuters) – The dollar firmed slightly on Tuesday, while the yen fluctuated after the Bank of Japan (BOJ) maintained rates unchanged and decided to slow its balance sheet drawdown next year.

The BOJ kept short-term interest rates at 0.5%, as expected at the conclusion of its two-day monetary policy meeting, and outlined a new bond tapering plan for fiscal 2026.

The yen was volatile afterward and was last slightly higher at 144.70 per dollar. Attention now shifts to comments during a post-meeting press conference by BOJ Governor Kazuo Ueda later today.

“Attention will be on what Governor Ueda says at his press conference. Markets will be particularly interested in how he categorizes the inflation trends in Japan, especially against heightened trade tensions,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

Japanese Prime Minister Shigeru Ishiba and U.S. President Donald Trump did not reach a tariff agreement.

In broader markets, the dollar maintained its gains amid a risk-off sentiment due to Middle East tensions.

The White House announced on Monday that Trump would leave the Group of Seven summit in Canada a day early due to the situation in the Middle East, and has requested the national security council prepare in the situation room.

Trump earlier urged immediate evacuations from Tehran and reiterated that Iran should have signed a nuclear deal with the U.S.

The risk-sensitive Australian dollar gained 0.09% to $0.6530 after earlier losses, while the New Zealand dollar rose 0.14% to $0.6068.

Against a basket of currencies, the dollar steadied at 98.15.

Analysts at DBS noted, “The developments out of the Middle East threaten regional stability gravely… The long-simmering Israel-Iran conflict reaching a new chapter should stress markets, but spillover risks seem manageable.”

Overall currency movements were subdued as investors awaited a series of central bank decisions later in the week.

The Federal Reserve’s policy decision on Wednesday will be pivotal, with expectations to hold rates steady, though guidance on the rate outlook will be closely monitored.

“Markets expect two Fed rate cuts this year, but I expect zero,” remarked Ronald Temple, chief market strategist at Lazard. “Investors will scrutinize the Summary of Economic Projections for insight on potential policy easing, focusing on the dot plot and macro forecasts. I expect a shift in the dot plot toward fewer rate cuts.”

Elsewhere, the euro saw little change at $1.1561, and sterling was last at $1.3574.

Trump signed an agreement on Monday to lower some tariffs on imports from Britain as both countries continue to work towards a formal trade deal.