By Ankur Banerjee SINGAPORE, Jan 23 (Reuters) – The yen stayed rangebound after the Bank of Japan held rates steady on Friday, as expected, while the U.S. dollar headed for its steepest weekly drop in a year after geopolitical tensions and abrupt policy shifts around Greenland unsettled investors. The yen was slightly weaker at 158.70 following the BOJ's rate decision and after it raised its economic and inflation forecasts, highlighting the central bank's readiness to continue hiking still-low borrowing costs. Last month, the BOJ raised its policy interest rate to a 30-year high but that has not helped the frail yen. Traders are concerned that a break beyond 160 per dollar could prompt Tokyo to step into the currency market to support the yen. The spotlight will now be on comments from Governor Kazuo Ueda to gauge when the next hike will come and whether there is any hawkish tilt from policymakers to support the yen. Ueda will hold a news conference to explain the decision at 0630 GMT. "Governor Ueda in his remarks will likely lean into a more hawkish direction, which may keep the next meetings ‘live’ for a further policy rate hike," said Fred Neumann, chief Asia economist at HSBC. "The Board appears to be leaning more hawkish as well, with one dissenter at today's meeting indicating that further policy rate hikes are on the table." The yen has been under relentless pressure since Sanae Takaichi took over as Japan's prime minister in October, dropping more than 4% on fiscal concerns and hovering near levels that have spurred verbal warnings and intervention fears. Magdalene Teo, head of fixed income research for Asia at Julius Baer, said the yen continues to be sold as investors fear that the BOJ's monetary policy remains too accommodative while inflation risk rises. Data on Friday showed Japan's core consumer inflation slowed in the year to December but stayed above the central bank's 2% target, keeping alive market expectations of future interest rate rises. A bond market rout this week underscored investor nerves about Japan's fiscal position as Takaichi called a snap election and promised tax cuts, sending Japanese government bond yields to record highs. Carol Lye, portfolio manager at Brandywine Global, said the authorities have to come up with a more concrete plan to calm the markets. "If there's no action, then it's just words. It's not going to anchor the market down." "And until they do, I think there's still room for the JGBs across the entire curve to continue being volatile. The rate hikes are also not coming in quickly enough." DOLLAR SELLING MOMENTUM The U.S. dollar was poised for its biggest weekly drop in a year after President Donald Trump's Greenland threats and abrupt reversal unnerved investors. The shifting geopolitical landscape has weighed on sentiment this week as Trump said he had secured U.S. access to Greenland in a deal with NATO that came as he backed off tariff threats against Europe and ruled out taking the autonomous territory of Denmark by force. The dollar has borne the brunt of investor angst in the currency markets as U.S. assets were pummelled at the start of the week amid the intensifying geopolitical tensions. The dollar index, which measures the U.S. currency against six units, was at 98.366 after dropping 0.58% in the previous session, on course for a 1% slide, its worst weekly performance since January 2025. The euro was steady at $1.1746, hovering near the three-week high it touched earlier this week, while sterling fetched $1.3496, near a two-week high hit in the previous session. Thierry Wizman, global FX & rates strategist at Macquarie Group, said while a Greenland deal solves the immediate problem of tariffs and invasion, it doesn't solve the core issue of the seeming alienation of allies from one another. "And that's not a good place to be if you want to preserve the USD's reserve-currency status." In other currencies, the Australian dollar was steady at $0.6841, while the New Zealand dollar was 0.35% weaker at $0.5908. (Reporting by Ankur Banerjee in Singapore; Editing by Shri Navaratnam and Jacqueline Wong)
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