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The yen weakened to a two-week low against the dollar on Wednesday, dragged down by renewed doubts over the Bank of Japan’s policy path and mounting tensions with China, with investors keeping an eye on wider risk appetite.Japan’s currency fell on Tuesday after a report that Prime Minister Sanae Takaichi told the BOJ she had reservations about more interest rate hikes and in reaction to China putting more Japanese firms on an export control list in retaliation for Takaichi’s comments about Taiwan.Following Takaichi’s landslide election win on February 8 the yen strengthened as markets bet that a government favouring fiscal stimulus would tilt the balance of risks towards additional monetary tightening.The yen dropped 0.50% to 156.70 against the dollar, after hitting 156.82, its lowest since February 9.Japan’s government on Wednesday nominated two academics viewed as strong stimulus advocates to the central bank’s board, a move that could push the BOJ in an even more dovish direction, although Derek Halpenny, head of research global markets at MUFG, voiced some uncertainty on that point.READ MORE: Yen weakens against dollar“We can’t be sure this will change the policy board dramatically, especially given the two departing members were on the dovish side,” he said.Nvidia results in focusInvestors are bracing for AI chipmaker Nvidia’s earnings report after the bell on Wednesday, with the stock’s 8% weighting in the S&P 500 meaning results could significantly affect market risk appetite.“If the U.S. dollar were to fall alongside high-beta forex, it would be a concerning signal that markets are developing broader, U.S.-specific worries linked to AI revaluations,” said Francesco Pesole, a forex strategist at ING.“We sense that this is less likely, and that the dollar will instead continue to respect its somewhat reduced, but still negative, correlation with U.S. equities,” he added.The Australian dollar rose 0.35% to $0.7084 after a pickup in inflation raised the risk of rate hikes.The Aussie is a so-called high-beta currency with a strong and persistent correlation with global risk assets, especially equities, and it remains the most vulnerable to stock market turmoil, being in a particularly stretched overbought position.Euro at the dollar’s mercyWith the European Central Bank on hold for the entirety of 2026, dollar dynamics will dominate trading in the single currency.“The recent U.S. Supreme Court decision on tariffs is adding uncertainty and could lead to the Trump administration targeting an even-weaker currency to support U.S. exports and reduce the widening U.S. trade gap,” said Roberto Mialich, global forex strategist at Unicredit.U.S. President Donald Trump said little to allay concerns about the future of his tariffs and global trade policy in his State of the Union speech on Tuesday.The euro was up 0.05% at $1.1718. The U.S. dollar index was down 0.05% at 97.92.The yuan, which has gained nearly 7% in 10 months, hit 6.8766 to the dollar on Tuesday, its highest in almost three years, and held at 6.8652 in offshore trade.Analysts at Goldman Sachs said a starting point of deep currency undervaluation and the remarkable strength of the export sector remained very much in place.China says it is closely monitoring U.S. policies and that it will decide “in due course” whether to adjust countermeasures to U.S. tariffs.
