* Yen pressured after Japan posts 17th straight trade
* Most investors still expect no Fed tapering this week
* Euro helped by repatriation, rising euro rates
* Aussie bounces back from 4-month low despite RBA comments
* Sterling soft after benign UK inflation data
By Lisa Twaronite and Hideyuki Sano
TOKYO, Dec 18 Another Japanese trade deficit
pulled the yen down against the dollar and the euro on
Wednesday, but that was only a minor distraction for anxious
investors waiting to see whether the U.S. Federal Reserve will
opt to reduce its stimulus at its policy meeting later in the
The Fed's asset purchases have been a major force that has
simultaneously underpinned riskier global assets and capped the
dollar in recent years. The Fed will announce its policy
decision at 1900 GMT and Chairman Ben Bernanke will hold a news
conference at 1930 GMT.
Economists at Citigroup see an even chance of the Fed
announcing a reduction at this meeting, and believe it is very
likely that actual cutbacks in asset purchases will begin either
next month or following the January meeting. They believe the
U.S. central bank will end its quantitative easing in the third
quarter of 2014.
"Our bias, a small dovish taper, may soon turn into a risk
rally," they added.
The dollar index stood at 80.056, nearly flat on the
day and well above a six-week low of 79.757 plumbed a week ago,
which remains a support level.
Many market players expect the Fed will trim its monthly
$85 billion bond-buying program by $10-15 billion at most when
it eventually chooses to do so.
Still, a no-taper decision on Wednesday could dent the
dollar, although it may hold its own against the yen, which
tends to get hit when risk appetite rises.
"Considering that share market fell after the end of QE1 and
QE2, there's a chance we could see similar negative impact,"
said Shin Kadota, chief FX strategist at Barclays, referring to
the Fed's previous episodes of transitioning from one
asset-purchase phase to the next.
The dollar added 0.3 percent against the yen to 102.93 yen
after rising as high as 103.04 yen, though still below a
five-year high of 103.925 yen reached on Friday.
The euro added 0.4 percent to 141.81 yen, though remained
below its own a five-year high of 142.82 yen also
touched on Friday.
Data released on Wednesday showed Japan posted a November
trade deficit of 1.29 trillion yen ($12.56 billion), marking a
record 17 straight months of deficits as a weak yen inflated the
cost of imported fuels.
The euro was also nearly flat at $1.3772, below a
two-year high of $1.3833 hit in October.
The euro has been helped by European banks' repatriation of
funds to shore up their capital bases before the European
Central Bank's asset review as well as rise in euro zone
interest rates in the past few weeks.
Euro zone finance ministers made progress on Wednesday on
some details of a plan to close banks, paving the way for
completion of a euro zone 'banking union' that is to restore
confidence in the financial sector and boost growth.
The rise in euro zone rates reflects both seasonal
tightening in money markets ahead of the year-end as well as
diminishing expectations that the ECB will adopt negative
Sterling rose slightly but stayed close to three-week lows
against the dollar and a six-week low versus the euro, after
benign UK inflation data dampened speculation about early rate
The pound traded at $1.6280, up about 0.1 percent.
The Australian dollar rose about 0.1 percent to $0.8902
after it slumped to a fresh four-month low of $0.8879
overnight as the Australian central bank repeated its recent
message that the currency was uncomfortably high.
Reserve Bank of Australia Governor Glenn Stevens said
earlier on Wednesday that an Aussie above $0.90 is not suitable
for the economy, keeping pressure on the currency.
In a rare media interview on Friday, Stevens said he thought
$0.85 was a more reasonable level than $0.95.