* BOJ cuts interest rates by 20 bps to 0.10 pct
* BOJ to start temporary buying of CPs, raise JGB buying
* Yen dips on BOJ rate cut but quickly regains ground
By Masayuki Kitano
TOKYO, Dec 19 (Reuters) - The dollar gained a brief lift
against the yen after the Bank of Japan cut interest rates on
Friday, but quickly gave up its gains, hurt by ongoing worries
about the U.S. economy's outlook.
In addition to cutting interest rates by 20 basis points to
0.1 percent, the BOJ said it would increase its monthly outright
purchases of Japanese government bonds and said it would
temporarily buy commercial paper outright. []
But with the U.S. Federal Reserve already having slashed
interest rates to virtually zero earlier this week, the impact on
the dollar against the yen turned out to be limited.
"If interest rates had been left unchanged the yen probably
would have risen sharply," said Tokichi Ito, deputy general
manager for Trust & Custody Services Bank's foreign exchange
team.
The BOJ's monetary easing pushed the dollar up roughly 30 to
40 pips against the yen to around 89.75 yen earlier.
But the U.S. unit later slipped off such levels to stand at
88.88 yen <JPY=>, down 0.6 percent on the day.
"It was a step that needed to be taken to prevent the yen
from rising, but was not the type of measure that can lead the
market towards yen weakness," Ito said.
With Japanese interest rates having already been very low,
the impact on the yen from cutting them by a further 20 basis
points was limited, said a trader for a European bank.
The dollar hit a 13-year low of 87.13 yen earlier this week,
after the Fed cut its interest rate policy target to a zero to
0.25 percent range, down from a previous target of 1.0 percent.
The yen's rise to such peaks against the dollar has fuelled
speculation that Japanese authorities may intervene to curb the
yen's advance to shield the country's exporters from further
damage.
The euro rose 0.1 percent against the dollar to $1.4256
<EUR=>, having retreated from a three-month high of $1.4720 hit
on trading platform EBS on Thursday.
The euro is still up over 6 percent against the dollar for
the week, having rallied after the Fed's rate cut, and since some
recent remarks by European Central Bank policymakers have cast
doubt on how quickly and how aggressively they may lower interest
rates.
One near-term risk for the dollar was the fate of U.S.
automakers, market players said.
"If this were to lead to Chapter 11 and cause more turmoil,
that could lead to risk aversion, causing stock markets around
the world to fall and the yen to rise," said Ito at Trust &
Custody Services Bank.
General Motors Corp and Chrysler made significant progress
late Thursday on a deal to secure emergency loans as part of a
U.S. government aid package, people familiar with the talks said.
Emergency federal loans for the two companies could be
announced by the government as early as Friday, according to the
sources who were not authorised to discuss the negotiations.
Both GM and Chrysler have said a bankruptcy filing is not an
option they would chose because of the risk that it would drive
more consumers away from their brands. []
(Editing by Chris Gallagher)
