Markets widely expect the Bank of Japan to raise interest rates on Friday, with the probability of a hike seen at about 70%, according to ETNet.

Analysts said the market has already priced in the BOJ's tightening expectations into the yen, and that further gains would likely require a sufficiently hawkish policy signal to make consecutive rate increases appear realistic. The yen recently climbed to its highest level since February, but the move has been challenged by widening policy differences, with the one-year forward OIS spread on dollar-yen rebounding to around 2.5%.

This week's policy meeting will be a key test. Investors currently price in a rate hike on Friday, but are relatively cautious about another increase afterward, reflecting expectations that the Federal Reserve's tightening stance will remain slightly stronger by year-end.