* BOJ: trims rates, launches fund to buy assets
* Yen falls as far as 83.99 per dollar before paring losses
* RBA says inflation to stay near 2.75 pct in near-term
By Hideyuki Sano
TOKYO, Oct 5 (Reuters) - The yen fell on Tuesday after the
Bank of Japan unexpectedly trimmed its rate target and launched a
fund to buy assets, while the Australian dollar tumbled after
Australia's central bank surprised by not raising rates.
The yen had softened ahead of the Bank of Japan decision,
with a newspaper reporting that it would consider expanding its
asset purchases but the decision still surprised the market.
In the event, the BOJ cut its overnight call rate target to
0-0.1 percent from 0.1 percent, said it would create a 5 trillion
yen ($60 billion) pool of funds to buy a wide range of assets and
said it would keep zero rates until prices stabilised.
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The dollar rose against the yen on the decision, climbing
half a yen to 83.99 yen <JPY=> before paring its gains to 83.75,
still up 0.5 percent on the day.
"This could set off yen-carry trades, as opposed to
dollar-carry trades," said Koji Fukaya, chief currency strategist
at Credit Suisse.
"The BOJ's decision will reduce the risk of dollar/yen
falling below 83 yen, although I still expect it will meet heavy
offers around 85 yen."
The dollar hit a 15-year low of 82.87 yen last month,
prompting Japanese authorities to intervene for the first time in
more than six years.
In the past few sessions, the dollar has been supported
around 83.15 yen, as some market players expect Japanese
authorities to intervene around that level, but broadly dollar
sentiment has been bearish on speculation that the U.S. Federal
Reserve will resume quantitative easing.
"The latest steps have prevented Japan from falling far
behind the United States in monetary easing, probably helping
mitigate pressure to push up the yen further," said Hiroshi
Watanabe, senior economist at Daiwa Institute of Research.
"But they are not likely to cause the yen to weaken."
The yen slipped against the euro, which rose 0.5 percent to
114.72 yen <EURJPY=R>.
Against other currencies the dollar is enjoying a bit of
respite. The dollar index was steady at 78.470 <=USD><.DXY>,
after edging off Friday's eight-month low at 78.029.
The euro <EUR=> firmed 0.1 percent to $1.3705, but was still
below Monday's 6 1/2-month high of $1.3809 on Monday after
players took profits from its rally since early September.
AUSTRALIA DISAPPOINTS WITH NO HIKE
The Australian central bank kept interest rates at 4.50
percent, while the market had priced in a 74 percent chance
<CSRBA=CSAU> of a hike before the announcement.
The Australian dollar <AUD=D4> fell 0.9 percent to a one-week
low around $0.9575, slipping further away from a two-year high of
$0.9751 hit late last week. Support was expected around $0.9560.
Some analysts said the Aussie's recent strength might have
given the Reserve Bank of Australia pause, while speculation
about quantitative easing in the U.S. and UK might have made it
cautious.
Still, market players say Australia's hefty yield advantage
over other major currencies is likely to support the Aussie.
"We've had hawkish talk from the RBA lately so it was a bit
of surprise. But it's not like rate hike expectations have been
completely dashed. I suspect the Aussie will be supported around
$0.95," said Ayako Sera, strategist at Sumitomo Trust Bank.
The derivative market is still pricing in another rate hike
within a year.
In fact the spectre of a further rate increase is in stark
contrast with many other developed countries, where monetary
easing is under discussion to support feeble economic growth.
"The truth is investors want to buy many currencies (other
than major currencies). But some currencies are illiquid and
there's often regulation, which leaves the Australian dollar the
best target for hot money," said Tsutomu Soma, senior manager of
foreign securities at Okasan Securities.
The Aussie also fell against the Japanese yen to around 80.31
yen, down 0.5 percent on the day but trimming its losses after
the yen fell on the BOJ decision.
(Additional reporting by Charlotte Cooper and Masayuki Kitano;
Editing by Joseph Radford)
