Dollar Up, Yen Down as Investors Focus on Central Bank Policy Decisions

The dollar was up on Thursday morning in Asia, with the yen and euro on a downward trend ahead of central bank policy decisions in Japan and Europe.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.02% to 93.817 by 12:58 AM ET (4:58 AM GMT).

The USD/JPY pair was down 0.23% to 113.54.

The AUD/USD pair inched down 0.07 % to 0.7509, with the Australian dollar remaining near its three-month top after the Reserve Bank of Australia declined to purchase a government bond at the heart of its stimulus program. The decision was made despite yields above the targeted 0.1%. The NZD/USD pair edged up 0.18% to 0.7178.

The USD/CNY pair inched up 0.10% to 6.3982 and the GBP/USD pair inched up 0.01% to 1.3748.

The euro inched down 0.1% to $1.1591.

Central bank policy decisions are in the spotlight, and "for the first time in what has felt for a long time, currencies are really driven by interest rate differentials, as central banks start to telegraph where they are in their normalization cycles," Commonwealth Bank of Australia (OTC:CMWAY) senior economist and currency strategist Kim Mundy told Reuters.

The Bank of Japan handed down its policy decision on Thursday. "BOJ is likely to look through the rebound in the CPI caused by rising commodity prices and a weaker yen," and "maintain the status quo on all key policy settings, as widely expected," Bank of America (NYSE:BAC) analysts said in a note.

The European Central Bank (ECB) also hands down its policy decision later in the day, with investors focusing on the central bank’s stance on inflation and its effect on a currently ultra-easy policy stance.

"We think ECB President Christine Lagarde will use all her diplomatic skills to moderate the diverging views of hawks and doves within the Governing Council on Thursday,” ING analysts in a note. A neutral message which "may ultimately defy some of the market's hawkish expectations” is expected, the note added.

Meanwhile, the Bank of Canada could hike interest rates as soon as April 2022 as it expects inflation to stay above target through much of the coming year. The U.S. Federal Reserve will also hand down its policy decision on Nov. 3.