The dollar was hovering near a one-month high on the back of the hawkish tone from the Fed this week, while political uncertainty in Europe kept the euro under pressure.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.48 percent lower. Chinese stocks also fell, with the blue-chip shares down 0.3 percent, while Hong Kong's Hang Seng was 0.79 percent lower.

Japan's Nikkei declined 0.25 percent, while the yen was slightly weaker at 157.185 per dollar in early trading ahead of the BOJ meeting where the central bank is likely to keep interest rates ultra-low.

But the focus will be on whether the BOJ will take steps to trim its bond purchases or drop clues on its future tapering plans and start reducing its huge balance sheet.

A Reuters poll showed nearly two-thirds of economists expect the BOJ to start tapering its monthly bond buying, now set at around 6 trillion yen ($38 billion), on Friday.

"It is possible that the BOJ will tweak its JGB buying operation with only a small reduction, but we are not sure that the BOJ will start cutting without a grace period," said ING economists in a note.

The yen's decline to a 34-year low of 160.245 per dollar at the end of April triggered several rounds of intervention by Japanese authorities totalling 9.79 trillion yen ($62.25 billion).

The yen, which is extremely sensitive to US Treasury yields, is down over 10 percent against the dollar this year.

Greg Hirt, global CIO for multi asset at AllianzGI, expects the BOJ to remain patient and possibly raise rates only in July or later this year as more data become available over the summer.

"The wild card is the renewed weakness of the yen over the past two months. Another bout of currency-induced cost-push inflation could be detrimental to achieving the goal of real income growth."

On the macro level, markets remain focused on when the US central bank will cut rates and by how much after event-filled week.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits increased to a 10-month high last week, while producer prices unexpectedly fell in May.

That followed Wednesday's cooler-than-expected consumer inflation report and the Fed's revised dot plot, which lowered rate-cut expectations this year from three to one.

James McCann, deputy chief economist at abrdn, said the Fed seems to be in a patient mood as it waits for signs of sustained progress on inflation and expects the US central bank to start its monetary easing campaign in December.

Traders though are taking their cues from the inflation reports and are now pricing in 50 basis points of cuts this year, with a rate cut in September priced in at 68 percent, CME tool showed.

"Rate expectations are likely to remain volatile over coming months against the backdrop of a data dependent Fed," McCann said.

The shifting expectations has seen the dollar bounce around this week, with the US currency index which measures its value against six peers, last at 105.25, not far from the one-month high of 105.46 it touched on Tuesday. The index is up 0.3 percent for the week.

In commodities, oil prices eased on Friday but were on track for their first weekly gain in four weeks as markets assessed the impact of US rates staying higher for longer against solid outlooks for crude and fuel demand this year.

Brent crude futures fell 0.62 percent to $82.26 a barrel while West Texas Intermediate (WTI) US crude futures eased 0.69 percent to trade at $78.08.