Japanese investors raised their holdings in foreign stocks, driven by a benign U.S. core inflation report that fuelled expectations of Federal Reserve cuts and boosted global equities, while a strong yen also lifted domestic buying power.

Traders look to Trump’s speech for a fresh impetus ahead of the BoJ decision on Friday.

The Japanese yen is slightly lower on Thursday. In the European session, USD/JPY is trading at 156.25, down 0.16% on the day.

The gap could widen even further, and exacerbate pressure on the yen, if the Federal Reserve’s preferred ... and a lot of very public pushback from Japanese officials,” said Joe Capurso ...

The Bank of Japan hiked interest rates on Friday to their highest level in 17 years and signalled more were in the pipeline despite fears of turmoil under US President Donald Trump.

The U.S. dollar weakened against the yen on Thursday, as softer-than-expected U.S. economic data and growing confidence for a Bank of Japan interest-rate hike sent it tumbling to a near one-month low against the Japanese currency.

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Looking back, yen-funded carry trades have turned out to be among the most profitable plays this year. Of 20 major emerging markets currencies, all generated positive total returns, led by the Turkish lira’s 19% and Mexican peso’s 14%.

Japanese markets eked out modest gains despite the yen's rise amid speculation of a BoJ rate hike next week. The Nikkei average edged up by 0.33 percent to 38,572.60 while the broader Topix index settled marginally lower at 2,688.31.

Japan's central bank has raised its key interest rate to about 0.5% from 0.25%, noting that inflation is holding at a desirable target level.

Bank of Japan (BoJ) Governor Kazuo Ueda addressed the post-policy meeting press conference on Friday, explaining the reasons behind the 25 basis points (bps) interest rate hike to 0.50% in January. The Japanese Yen is extending gains against the US Dollar, driving USD/JPY 0.75% lower on the day below 155.00, as of writing.

A weaker yen is typically good for Japanese exporters but could push inflation higher because the country imports much of its energy and food. The Bank of Japankicked off a global market selloff last time it raised interest rates. The likely rate increase this week will be less dramatic, but the real suspense lies in what comes next for the yen.