Forex-Dollar holds near two-week high ahead of Fed decision

The yen, which started September strong on a hawkish shift in expectations for Japanese interest rates, joint intervention by Japan and the U.S., and speculation that Japanese investors are repatriating capital, has floundered in recent sessions as the dollar has firmed.

Traders see an 80% chance that the Bank of Japan will hike rates on Friday, LSEG data show, and have priced in two 25-basis-point hikes by the end of January.

"The yen's path will continue to depend heavily on interest rate differentials," David A. Meier, economist at Julius Baer, said in a research note.

"We recently revised our USD/JPY forecasts to 155, reflecting some scepticism that the central bank can ultimately satisfy the pace of tightening currently priced in by markets," he added.

A long rally in China's yuan CNY=CFXS has lost momentum at around 6.71 to the dollar, but the currency is holding its gains despite a widening gap between low Chinese yields and rates elsewhere.