* Bank of Japan upgrades economic assessment, stands pat as
* BOJ might ease for up to 5 years to achieve price
By Sophie Knight and Lisa Twaronite
TOKYO, May 22 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
"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
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.