FOREX-Yen claws back from 5-year trough in wake of Fed taper
* BOJ likely to stay the course at 2-day meeting ending Friday
* Aussie skids to 3-1/2-year low after Fed move
* Strong UK retail sales could send sterling above 2-yr high-strategist
By Lisa Twaronite and Dominic Lau
TOKYO, Dec 19 (Reuters) - The dollar gave back some of its gains after cresting at its highest against the yen in more than five years on Thursday in Asia, after the U.S. Federal Reserve said it would start to cut its massive bond-buying stimulus and sent markets a strong signal that the U.S. economy was growing at a healthy clip.
The U.S. central bank said on Wednesday that it would taper its monthly asset purchases by $10 billion, bringing them down to $75 billion, with the reduction to be equally split between mortgage-backed securities and Treasury bonds.
The greenback rose to 104.37 yen, a level not seen since October 2008. It jumped 1.6 percent versus the Japanese currency overnight, marking its biggest one-day rally in 4-1/2 months, but was last down about 0.3 percent at 103.96 yen.
"We've been calling for 104.70, 105 as targets, and it took this event to get above 104, which was a bit surprising," said Bart Wakabayashi, head of forex at State Street Global Markets in Tokyo.
"Institutional investors, asset managers were pretty much positioned for this taper," he said.
In a move to forestall any sharp market reaction that could undercut the recovery, the Fed also said it "likely will be appropriate" to keep overnight rates near zero "well past the time" that the U.S. jobless rate falls below 6.5 percent.
Barclays said it expected the Fed to reduce its stimulus by $10 billion at each meeting through September 2014, followed by a $15 billion cutback to end the historical campaign at the October policy meeting.
In contrast with the U.S. central bank, the Bank of Japan is expected to maintain its ultra-easy monetary stance as it aims for its target of 2 percent inflation within two years at the conclusion of its two-day policy meeting on Friday.
With the economic recovery gathering momentum and the weaker yen supporting Japanese exports, the BOJ will likely refrain from expanding its stimulus any time soon. But nearly two-thirds of Japanese firms expect the BOJ to muster more stimulus steps in the first six months of 2014, a Reuters poll showed earlier this month.
The euro slipped 0.6 percent to 141.00 yen after touching a five-year high of 142.89 yen on Wednesday after the Fed's move.
The euro also came under pressure against the greenback, hitting a two-week low, and analysts at BNP Paribas continued to recommend a short euro/dollar strategy.
The euro was down 0.2 percent at $1.3657, adding to Wednesday's 0.6 percent slide and earlier touching $1.3649, its lowest against the dollar since Dec. 6.
The Australian dollar hovered near a 3-1/2-year low in the wake of the Fed's announcement. The Aussie fell as far as $0.8820, its lowest since August 2010, and was last down 0.3 percent at $0.8830.
Sterling pulled back, having rallied against the dollar on Wednesday after British unemployment fell more than expected, raising expectation that interest rates could rise earlier than previously forecast.
The pound was down about 0.1 percent at $1.6369, off from a more than two-year peak of $1.6486 set on Wednesday.
Kathy Lien, managing director of FX strategy for BK Asset Management, said strong UK retail sales, due out at 0930 GMT, could drive sterling above its two-year high.
"Given widespread improvements in the UK economy, retail sales are expected to rebound after dropping 0.7 percent the previous month," she said in a note to clients.
But casting a pall over the outlook for risk sentiment in Asia, China's benchmark seven-day bond repurchase contract soared after the country's central bank declined to inject fresh funds during open market operations.
One-year interest-rate swaps based on the seven-day repo rate, which typically reflect liquidity conditions, hit a new high of 4.99 percent.
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