* BOJ announces tweaks to fixed rate fund supply scheme
* Central bank keeps rates on hold, no rise in bond purchases
* Forex and stock markets disappointed by BOJ decision
* U.S. seen easing more aggressively, weighing on dollar
By Masayuki Kitano
TOKYO, Aug 30 (Reuters) - The yen pared broad losses on
Monday as the Bank of Japan's decision at an emergency meeting to
expand a fixed-rate fund supply scheme disappointed investors
looking for more aggressive easing measures to weaken the yen.
Market players expect the yen to rise to a new 15-year high
against the dollar if expectations mount that the Federal Reserve
will act to spur growth down the road, as the U.S. central bank
stands ready to take more easing steps.
Fed Chairman Ben Bernanke said just that in a speech on
Friday, although he downplayed concerns that the U.S. economy
might slip back into recession. []
"Bernanke's speech has clearly demonstrated that the U.S. now
has an easing bias. Their easing could be more aggressive than
the BOJ's," said Minori Uchida, a senior analyst at Bank of
Tokyo-Mitsubishi UFJ.
"I think the yen will strengthen to around 80 yen by the end
of year," he said.
Following an emergency policy meeting, the BOJ said it would
increase the volume of funds to be offered in its fixed-rate fund
supply operation to 30 trillion yen ($351.4 billion) from 20
trillion yen.
It also said it would offer fixed-rate loans to banks with a
maturity of six months, and would keep its overnight call rate
target unchanged at 0.1 percent. The central bank refrained from
increasing its purchases of Japanese government bonds.
[] []
"The additional easing measures announced by the BOJ were
only in line with market expectations and fuelled dollar-selling
due to disappointment," said Masafumi Yamamoto, chief FX
strategist for Japan at Barclays Capital.
If BOJ Governor Masaaki Shirakawa, in a news conference later
on Monday, points to the possibility of shifting toward
quantitative easing via steps such as increasing the amount of
banks' current account balances at the BOJ, the market reaction
could change, but that seems extremely unlikely at this point,
Yamamoto said.
The dollar pared its gains against the yen to 85.38 yen
<JPY=>, up 0.2 percent on the day but down from around 85.90 yen
just before the BOJ's decision was announced.
The dollar slid last week to a 15-year low of 83.58 yen on
trading platform EBS, hurt by worries that the U.S. economy may
fall into a double-dip recession and falls in U.S. Treasury
yields, as well as market perceptions that the Fed is more
willing to take aggressive monetary easing steps than the BOJ.
Option-related yen-selling is also likely to keep the yen's
advance slow beyond 85 yen, some traders also said.
Prime Minister Naoto Kan has also warned against the yen's
rise, saying Japan monetary authorities could take all possible
measures to tackle the soaring yen, making traders cautious about
pushing up the yen too rapidly.
Still, many players believe Tokyo is likely to wait for the
yen to rise around 80 per dollar before intervening in the
market.
Any intervention is likely to be a unilateral action given
the perception that neither the United States not Europe would be
keen to help boost the value of their own currencies in light of
weakness in their economies.
Japanese cabinet ministers were due to decide the basic
thrust of additional measures to help the slowing economy at a
meeting later in the day, though dealers expect little in the way
of surprises to the markets.
With the BOJ and the government coming up with their
responses, "this battle between the authorities and markets on
the yen is entering its final stage, in which the market will
test the authorities' resolve to intervene", said a dealer at a
European bank.
The euro, which had risen to as high as 109.56 yen earlier,
shed its gains and was little changed on the day at 108.78 yen
<EURJPY=R>.
Against the dollar, the euro dipped 0.2 percent to $1.2739
<EUR=>.
The Australian dollar also slipped 0.4 percent on the day to
76.60 yen, dropping nearly a full yen from the day's high around
77.51 yen.
(Additional reporting by Yoshiko Mori and Hideyuki Sano; Editing
by Michael Watson)
