Investing.com – Most Asian currencies strengthened slightly on Tuesday following the recent strengthening of the dollar, with the Japanese yen gaining on speculation about government intervention and interest rate hikes by the Bank of Japan.

However, sentiment towards Asian markets remained uncertain amid the prospect of a trade war between China and the West. While Chinese ministers met with German officials over tariffs on electric vehicle imports, Canada joined the United States in potentially imposing restrictions on Beijing.

Broader expectations for the main inflation indicators from the US and Japan also weakened the mood.

The Japanese yen remains powerful, USDJPY retreats from around 160

The yen has rallied this week, with the pair retreating from levels that triggered government intervention in May.

The USDJPY pair fell 0.2% to 159.36 after rising as high as 159.9 on Monday. Japanese officials maintained warnings that they would intervene in the event of “excessive” yen volatility.

Minutes from the BOJ’s June meeting also provided some support for the yen as some officials raised the possibility of an interest rate hike in July.

This week the focus is on the key, which falls on Friday. The reading is expected to provide more clues about the path of inflation, which is a key factor for the BoJ in tightening policy.

Volatile Chinese Yuan, USDCNY Hits 7-Month High

China’s yuan weakened on Tuesday, with the pair rising to a seven-month high after the People’s Bank of China weakly set its midpoint.

The mood towards China has been largely soured by the prospect of a trade war with the West after Chinese officials signaled such a possibility in the face of high European import tariffs on electric vehicles.

Canada was also seen considering restricting Chinese electric vehicles, potentially increasing trade war concerns.

Traders were now watching dialogue between Chinese and German officials over tariffs.

The dollar is depreciating, PCE inflation is expected

Shares and fell slightly in Asian trading, extending an overnight decline after giving up some of the gains made after a powerful rally throughout last week.

This week, the focus was squarely on the upcoming data. The reading is the Federal Reserve’s preferred measure of inflation and will likely be included in the bank’s interest rate forecasts.

Concerns over China and the wait for PCE data kept trading mostly steady for most Asian currencies, although a weakening dollar helped them stem recent losses.

The Australian dollar pair rose 0.1%, also focusing on Wednesday’s reading.

The South Korean won pair was flat, as was the Singapore dollar pair.

The Indian rupee pair was unchanged but reached record highs last week.