The yen edged up against the dollar while Tokyo equities dipped in early trade as investors await the end of a crucial Bank of Japan meeting to see if it will ramp up its stimulus programme to inject life into the country's stuttering economy.
With the European Central Bank giving a strong indication it will loosen the reins on monetary policy in December and China last week slashing interest rates, economists are split on whether Tokyo will follow suit.
The meeting comes days after the Federal Reserve dropped a hint that it would raise US interest rates, confounding expectations it would delay a move until the new year owing to weakness in the global economy.
"The key question today is the BoJ and whether they will follow the European Central Bank lead in signalling or even delivering further policy stimulus," Sharon Zollner, a senior economist at ANZ Bank New Zealand Ltd. in Auckland, said in a client note.
"Further stimulus, or a promise thereof, would alter market dynamics, offsetting the Fed normalisation pulse."
After more than two years of huge government spending and BoJ bond-buying stimulus -- pushed by Prime Minister Shinzo Abe -- the Japanese economy is still unable to gain traction and inflation remains anaemic. The tepid readings have brought into question Abe's growth blitz.
On Friday official data showed consumer prices fell in September while household spending also retreated. The figures follow a string of downbeat indicators that have fanned calls for the BoJ to add to the stimulus.
There is speculation the bank will roll back its already lacklustre inflation and growth projections as Japan teeters on the edge of recession.
Kazuhiko Ogata, chief economist of Credit Agricole in Tokyo, told AFP there was a 50 percent chance the BoJ would announce an easing move after the meeting.
- 'Matter of time' -
"Unless the equity market regains momentum, it's a matter of time for the BoJ to take some kind of additional action," he said.
"Last year, the BoJ took action at the end of October, just after a significant collapse in the equity market. A similar case could take place this time around."
In early trade the yen edged up against the dollar and euro. The greenback bought 120.94 yen from 121.10 yen Thursday in New York, while the euro was at 132.78 yen against 132.96 yen.
The dollar, however, held on to most of the previous day's gains that came after the Fed put a rate hike on the table for its last policy meeting of 2015.
The US unit had come under pressure for most of this month after it suggested in September that the world outlook was possibly too weak to withstand a rise in borrowing costs.
Emerging market currencies mostly advanced, having retreated Thursday on the Fed announcement.
The South Korean won gained 0.25 percent, Thailand's baht added 0.20 percent and the Singapore dollar was up 0.17 percent. The Taiwan and Australian dollars also advanced but there were small losses for Indonesia's rupiah and the Malaysian ringgit.
Most stock markets were lower, extending a sell-off Thursday, with Tokyo down 0.11 percent, Hong Kong 0.48 percent off and Sydney down 0.58 percent. Shanghai shed 0.64 percent.
Wall Street provided a soft lead with dealers virtually unmoved by a Commerce Department report showing third-quarter US economic growth slowed to an annual rate of 1.5 percent, in line with expectations, from a 3.9 percent pace in the second quarter. Some aspects of the report were solid, including a 3.2 percent rise in consumer spending.
The Dow edged down 0.13 percent, the S&P 500 ticked 0.04 percent lower and the Nasdaq slipped 0.42 percent.