Overall, the Japanese currency is likely to find further support close to the 119.50 level against the dollar, but substantial gains look unlikely in the short term.          

The dollar was unable to strengthen above the 119.50 level on Monday and weakened back to 119.0 in Asian trading on Tuesday with dollar lows around 118.75, although the Japanese currency weakened to record lows against the Euro and the Japanese currency struggled to sustain gains against the dollar.

As expected, the Bank of Japan left interest rates unchanged at 0.5% following the latest policy meting with a 9-0 vote while Bank governor Fukui stated that the bank would continue to adjust interest rates gradually. The low level of yields will maintain the potential for investment flows out of the Japanese currency, especially with renewed interest in carry trades.

The G7 meetings at the end of this week will tend to discourage heavy Japanese currency selling, although a substantial impact is unlikely as there will be low expectations of any serious action on currencies. The yen will also gain some support if there is an escalation in Chinese trade tensions with the US.