SINGAPORE (REUTERS)

The yen suffered a sudden spill overnight on Wednesday, pressured by wide interest rate differentials between Japan and the rest of the world, even as its central bank is widely expected to tighten policy next week.

The dollar was broadly steady, and moves in other currencies were muted ahead of a key Federal Reserve policy decision later in the day, where investors are wagering on a cut in what is likely to be one of the most fractious meetings in years.

The yen was up 0.15% at 156.64 per dollar, after a 0.6% fall towards the 157 level in the previous session despite no obvious trigger.

Against the euro, the Japanese currency similarly sank to a record low overnight and remained pinned near that level on Wednesday. The Aussie held to Tuesday's 0.8% gain against the yen.

The Bank of Japan (BOJ) meets next week and is expected to raise interest rates, though focus will also be on what Governor Kazuo Ueda says about the future policy path.

Expectations of more expansionary fiscal measures in Japan have complicated the outlook for BOJ policy under which rates remain among the lowest in the world, in contrast to its peers elsewhere.

Australia's central bank on Tuesday warned of rate hike risks if inflation pressures prove to be stubborn.

Bart Wakabayashi, branch manager at State Street in Tokyo, said their flows suggested positioning on dollar/yen was neutral but showed buying of euro/yen and Aussie/yen.

Waiting on the FED

In the broader market, all eyes were on the Fed's decision due later in the day, in which a 25-basis-point rate cut is almost fully priced in.

Ahead of the outcome, the euro was little changed at $1.1628, while sterling ticked 0.06% higher to $1.3305.

The dollar index, which measures the US currency against six key rivals, was firm at 99.20.

Apart from the rate move, traders will also be focused on what Fed Chair Jerome Powell says and how many cuts the dot plot will lay out for 2026.

Investors have been dialling back on expectations of rate cuts in 2026 on lingering inflation concerns and expectations of a more resilient US economy.

Data on Tuesday showed US job openings increased marginally in October after surging in September.

White House economic adviser Kevin Hassett, the front-runner to be the Federal Reserve's next chair, told the WSJ CEO Council on Tuesday there is "plenty of room" to cut interest rates further, though he added that if inflation rises, the calculation may change.

In other currencies, the Australian dollar bought $0.6641, having risen to a near three-month high in the previous session on hawkish comments from Reserve Bank of Australia Governor Michele Bullock.

The New Zealand dollar eased 0.12% to $0.5772.