FOREX-Dollar treads water as investors await Bernanke testimony
* Bank of Japan upgrades economic assessment, stands pat as expected
* BOJ might ease for up to 5 years to achieve price goals-Reuters poll
By Sophie Knight and Lisa Twaronite
TOKYO, May 22 (Reuters) - The dollar languished well below last week's 4-1/2-year high against the yen on Wednesday, ahead of testimony from the U.S. Federal Reserve chief after two regional Fed presidents hinted that the central bank will continue its bond-buying scheme.
Moves were muted, with the dollar adding just 0.1 percent to 102.57 yen, off Friday's high of 103.32 yen, as investors awaited Ben Bernanke's testimony to Congress at 1400 GMT, as well as the minutes of the Fed's last policy meeting.
Both will be parsed for clues to officials' intentions.
The Bank of Japan kept its own policy steady on Wednesday as widely expected despite concerns over recent volatility in the Japanese government bond market. It upgraded its assessment of the economy, saying it "has started picking up."
BOJ board member Takahide Kiuchi proposed that the central bank make its 2 percent inflation target a medium- to long-term goal, and commit to intensive easing in the next two years. This would differ from the BOJ's current commitment to hit its inflation target within two years. Kiuchi's proposal was rejected in an 8-1 vote.
"Kiuchi's comments were a bit of a surprise but they didn't prompt any market reaction," said Kenichi Asada, manager of forex at Trust & Custody Services Bank.
The BOJ might end up pursuing its massive monetary easing for up to five years before achieving inflation levels conducive to unwinding its aggressive stimulus, a Reuters poll of BOJ watchers suggested.
"I think the trend for a weaker yen will continue. But of course we also have events on the U.S. side today," Asada said.
On Tuesday, St. Louis Fed President James Bullard told an event in Frankfurt the Fed should maintain its policy, adjusting the pace of its bond buying according to incoming data, and said U.S. inflation has recently been below target.
New York Fed President William Dudley said the economy's ability to tolerate less government spending and higher taxes in coming months will be key as to whether the Fed opts to reduce its bond purchases.
"Given words from other Fed members ahead of Bernanke's testimony, we're not expecting Bernanke to signal taking a step back from bond-buying anytime soon, so that could be a short-term negative for the dollar," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York.
"I would expect him to be upbeat about the economic assessment but cautious about headwinds, which is what he's been previously," he added.
Investors shrugged off data released early in the session that showed Japan posted a trade deficit of 879 billion yen ($8.6 billion) in April, with a pick-up in exports narrower than expected, despite the yen's 20 percent tumble against the dollar in the past six months.
Against a basket of currencies, the dollar lost just 0.03 percent to 83.841, while the euro added 0.04 percent to $1.2910.
The Australian dollar slackened 0.4 percent to $0.9766 after earlier climbing as high as $0.9842, as it resumed pulling closer to an 11-month low of $0.9711 plumbed earlier this week.
The Aussie has lost more than 5 percent so far this month, pressured by fears of a Chinese slowdown and lower commodity prices as well as recent signs of a U.S. economic recovery.
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