FOREX-Dollar, euro hold gains vs yen after BOJ stands pat
* BOJ holds steady as expected, hikes economic assessment
* Japan's Oct-Dec GDP contracts, building case for more easing
By Lisa Twaronite
TOKYO, Feb 14 (Reuters) - The dollar and euro held their gains against the yen on Thursday after the Bank of Japan kept policy steady as expected, with investors looking ahead to a meeting of Group of 20 nations in the coming days for signals on how long the yen's weak trend might last.
The BOJ also revised up its assessment of the economy, as recent falls in the yen and signs of a pick-up in global growth give it some breathing space after it expanded stimulus just a month ago.
Some believe the BOJ might hold off on expanding stimulus next month, and wait until the first rate review under its new governor, scheduled for April 3-4. BOJ Governor Masaaki Shirakawa will leave together with his two central bank deputies three weeks ahead of the end of his five-year term, clearing the way for slightly earlier implementation of aggressive monetary easing under his successor.
"This is the BOJ's 'lame duck session,' so it is natural that they didn't do anything today, and perhaps not next month," said Citibank Japan chief FX strategist Osamu Takashima.
"But the market expects monetary easing under the new governor," he added.
The dollar traded at 93.54 yen, up 0.3 percent and moving back toward a 33-month high of 94.465 set on Monday. The euro stood at 125.63 yen, up 0.1 percent and moving closer to a 34-month peak of 127.71 scaled a week ago.
Data released earlier on Thursday showed Japan's economy contracted for the third consecutive quarter in October-December, adding weight to the new government's push for radical policy steps to revive growth and whip deflation.
Since November, the dollar has soared around 20 percent on the yen, while the euro has gained about 25 percent, as the BOJ came under relentless political pressure to deliver aggressive stimulus steps.
Markets turned nervous this week ahead of the BOJ meeting as well as a two-day meeting of G20 finance ministers and central bank officials starting on Friday, due to concerns that Japan could come under pressure from international peers unhappy with the yen's steep fall.
On Thursday, South Korea's central bank explicitly cited "the new Japanese government's expansionary policy operations" as one of the "potential uncertainties" to South Korea's growth path.
A G7 statement this week, designed to cool international currency tensions, caused some market confusion after Japan said the statement condoned its reflationary policy, while a G7 official suggested otherwise.
Against the dollar, the euro was slightly lower, down about 0.1 percent at $1.3437 after earlier rising to a one-week high of $1.3520 in the waning hours of North American trade. Resistance is seen around $1.3530, the 50 percent retracement level of its Feb 1-11 fall.
Underpinning the euro, data on Wednesday showed output at euro zone factories rose for the first time since August at the end of last year, a sign the single currency bloc was slowly starting to pull out of recession.
While the euro zone has shown some signs of stability, some market participants wondered whether its performance lags actual economic conditions.
"Some investors are confused as to the future course of the euro, since its recent rise wasn't due so much to fundamentals," said Kimihiko Tomita, head of forex at State Street in Tokyo.
Commodity currencies succumbed late in the session, with the Australian dollar pulling back to $1.0350 after rising to a one week high of $1.0370. However, it remained well off a four-month low of $1.0222 plumbed on Tuesday.