TOKYO/SINGAPORE (Reuters) - The dollar inched higher against a basket of major peers on Monday as traders braced for new Federal Reserve Chair Jerome Powell's first monetary policy meeting this week, and as the increased threat of trade protectionism kept markets on edge.
The safe haven yen edged up as investors' risk appetites waned, with MSCI's broadest index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) slipping 0.4 percent.
Traders are also nervous after weekend polls suggested a massive drop in public support for Prime Minister Shinzo Abe over his handling of a festering cronyism scandal, which has raised doubts about his ability to press forward with his reflationary economic agenda including monetary easing.
Speaking in parliament on Monday, Abe took responsibility for a loss of trust in his government, but denied he or his wife had intervened in a land sale to a school operator with ties to his wife.
The dollar index (DXY) against a basket of six major peers rose 0.1 percent to 90.297. On Friday, the index hit a two-week high near 90.38, getting a boost after data showed a February surge in U.S. industrial production.
The U.S. data reinforced views that the global economy is enjoying strong growth and that the Fed will raise interest rates on Wednesday at the end of its two-day meeting.
With a 25 basis point rate hike seen as a done deal, a key focus is on whether Fed policymakers forecast four rate hikes this year in their "dot plot" projections, instead of three they projected at a December meeting.
The prospects of more rate hikes typically support a currency because higher interest rates tend to attract funds. However, recent political headlines have drawn more attention as investors fret that U.S. President Donald Trump's tariff and other protectionist policies could disrupt the U.S. and global economy.
The Canadian dollar has taken the brunt of worries about U.S. protectionism, as investors discount the risk Trump may walk out of the North American Free Trade Agreement.
The Canadian currency slipped to C$1.3123 per U.S. dollar at one point on Monday, its weakest level since June.
In Japan, domestic politics have been an increasing focal point for traders.
A Nippon TV poll found Abe's support crumbling some 14 percentage points from last month to 30 percent, the lowest for that poll in Abe's more than five years in office.
The dollar eased 0.2 percent to 105.74 yen , inching back in the direction of a 16-month low of 105.24 yen touched on March 2.
Most traders think the yen will rise if Abe has to resign given that his push for aggressive monetary stimulus has weighed on the currency.
"Japanese political risk will be a market focus for now. There is the risk that 'Abenomics' will be rolled back," said Shinichiro Kadota, strategist at Barclays(LON:BARC) in Tokyo.
The yen also rose on the crosses, with the euro down 0.5 percent against the Japanese currency at 129.72 yen (EURJPY=R).
"There's political concern in Japan, but also a lot of cross/yen selling," said Tareck Horchani, head of sales trading in Asia-Pacific for Saxo Markets in Singapore.
Against the dollar, the euro fell 0.2 percent to $1.2266 (EUR=).
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