* Euro hits 11-week high vs yen before retreating
* Euro nears 5-week high vs dollar
* BOJ holds rates steady, to increase JGB buying
* BOJ move seen negative for yen but reaction subdued
By Masayuki Kitano
TOKYO, March 18 (Reuters) - The euro held close to a recent
one-month high on the dollar and briefly forged to an 11-week
peak against the yen on Wednesday, buoyed by improved investor
confidence after surprisingly upbeat U.S. and German data.
The yen showed limited reaction to the Bank of Japan's
decision to hold interest rates steady at 0.10 percent and
increase its outright JGB buying to 1.8 trillion yen ($18.28
billion) per month from 1.4 trillion yen. []
Analysts had been divided on whether the BOJ would decide to
increase its outright JGB buying at this week's meeting and the
400 billion yen monthly increase, which the BOJ said was designed
to "smooth market operations", was bigger than expected.
But since central banks abroad have already taken aggressive
monetary easing steps of their own, the boost in the BOJ's JGB
buying is unlikely to cause the yen to fall sharply, said Osamu
Takashima, chief analyst at Bank of Tokyo-Mitsubishi UFJ.
"I don't think it is the case that the yen's fall will
accelerate because of this," Takashima said.
While the BOJ's decision by itself is negative for the yen,
the overall impact must be considered while comparing its action
to what other central banks such as the Federal Reserve have been
doing, he said.
"In the case of the United States, the situation is that
there has been a rapid expansion of the balance sheet with risk
assets," Takashima said.
With many major economies' interest rates close to zero,
central banks around the world are considering unconventional
measures such as quantitative easing, which was employed by Japan
from 2001 to 2006, to keep credit flowing.
In quantitative easing the banking system is flooded with
money to promote lending, usually by buying large quantities of
assets from banks, so as to get the economy moving.
The dollar eased 0.1 percent to 98.47 yen <JPY=>, still well
short of this month's four-month peak of 99.69 yen.
The euro hit its highest since late December at 128.83 yen in
early Asian action on trading platform EBS but then retreated to
128.31 yen <EURJPY=R>, little changed on the day.
Some traders cited talk of fund repatriation by Japanese
institutional investors, adding that such flows may have lent
support to the yen.
Bank of Japan Governor Masaaki Shirakawa will hold a news
conference later in the day.
The Fed, which will announce its rate decision later on
Wednesday, is seen unlikely to come up with new measures and is
expected to keep its target for the overnight federal funds rate
steady at zero to 0.25 percent. []
CHANGE IN RISK CLIMATE
Analysts say investors are beginning to feel a little more
confident that conditions may be starting to stabilise, helped by
news of a 22.2 percent surge in U.S. housing starts in February
and an improvement in German investor sentiment. []
That has bolstered the euro and put pressure on the dollar,
which tends to gain when investors become risk averse
because it is seen as the safest store of value at time when
economies across the globe are contracting.
"Now the market is relieved, getting a little optimistic, so
that's why (dollar) repatriation or deleveraging flows stop and
there's no dollar buying," said Tohru Sasaki, chief foreign
exchange strategist Japan at JP Morgan Securities.
Masafumi Yamamoto, head of FX strategy Japan at Royal Bank of
Scotland, said however that the euro's recent gains were as much
due to buying back by investors who had expected it to fall
further, as the market had priced in a lot of negative news from
countries surrounding the euro zone which had not materialised.
The euro rose 0.1 percent to $1.3030 <EUR=>, inching back
towards Monday's five-week high of $1.3072 and just below its
100-day moving average on the technical charts which was
providing resistance at about $1.3060.
($1=98.47 Yen)
(Additional reporting by Charlotte Cooper; Editing by Michael
Watson)
