Asian shares and the yen steadied early on Tuesday as traders' focus turned on Japan's central bank and whether it might edge further away from its ultra-easy monetary policy, while global equities continued to cheer the prospect of U.S. rate cuts.

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MSCI's broadest index of Asia-Pacific shares outside Japan was flat and just below a four-month high.

Oil held overnight gains after producer BP followed other shipping firms and said it would avoid the Red Sea following recent attacks by Houthi forces. Several countries have agreed to joint patrols to try to safeguard commercial shipping.

Japan's Nikkei was flat. Nippon Steel shares fell more than 5 per cent to a five-month low after it announced a $14.9 billion deal to buy 122-year-old U.S. Steel.

The yen hovered around its 200-day moving average at 142.53 per dollar.

The Bank of Japan later on Tuesday will announce its latest policy decision amid speculation it is considering how and when to move away from negative interest rates. None of the analysts polled by Reuters expected a definitive move, but policymakers might start laying the groundwork for an eventual shift.

April was favoured by 17 of 28 economists as the kick-off for negative rates to be scrapped, making the BOJ one of the few central banks in the world tightening.

"While steady BOJ policy may be on the cards ... the meeting may still be instrumental," said Rabobank strategist Jane Foley in a note, as the central bank plots an eventual path to higher rates.

"With the odds currently favouring further policy normalisation next year and given rate cut risks for other G10 central banks, the yen appears poised to have a better year in 2024," she said, forecasting the dollar/yen pairing at 135 in a year's time.

Yields on Japanese government bonds rose very slightly in morning trade, tracking a modest lift in Treasury yields overnight. The 10-year yield had climbed 2.8 basis points after Federal Reserve Bank of Cleveland President Loretta Mester and Chicago Fed President Austan Goolsbee each pushed back at market bets on swift U.S. rate cuts next year.

Equity markets mostly shrugged off the remarks, with the Dow Jones making a record high on Monday, while the S&P 500 drew nearer to the milestone.

Traders reckon the slowdown in inflation means the Fed will have to ease policy just to stop real rates from rising, and are wagering on early and aggressive action.

Interest rate futures markets price in more than 140 basis points of Fed cuts next year and were also unmoved by pushback last week from New York Fed President John Williams.

Currency markets were broadly steady ahead of the BOJ decision. The dovish outlook for U.S. rates had dragged the dollar index down 1.3% last week, though similarly aggressive projections elsewhere are limiting further falls.

Markets imply around 150 basis points of easing by the European Central Bank next year, and 114 basis points of cuts from the Bank of England. ,

That kept the euro to $1.0921 and sterling to $1.2556. The Australian dollar lifted very slightly to $0.6714 after minutes showed policymakers had considered a second straight hike in December.

Brent crude futures settled at $77.95 a barrel.

Bitcoin bounced from a one-week low to regain a footing above $42,000 on Tuesday. Beyond the BOJ decision, U.S. housing starts figures and Canadian inflation data are due later on Tuesday.