* Dollar supported by expectations for more Fed tapering
* WSJ says Fed could announce further tapering next week
* Story seen reinforcing prevailing market expectations
* Kiwi rallies as inflation data heats up January rate hike
* BOJ kicks off two-day policy meeting
By Ian Chua and Masayuki Kitano
SYDNEY/SINGAPORE, Jan 21 The dollar rose versus
the yen on Tuesday, helped by renewed talk that the U.S. Federal
Reserve may announce a further reduction of its bond-buying
stimulus next week, while the New Zealand dollar surged after a
surprise pick-up in inflation.
The U.S. dollar advanced 0.5 percent to 104.65 yen,
bringing it closer to possible resistance near 104.92 yen, an
intraday high hit on Jan. 16.
Traders said a story in the Wall Street Journal's online
edition saying the Fed could announce a further reduction to its
monthly bond purchases at the end of its Jan. 28-29 policy
meeting, to $65 billion from the current $75 billion, gave the
dollar a boost.
Such a reduction would be in line with the prevailing market
expectations in a recent Reuters survey.
"I think heading into this week the expectation was for the
Fed to announce a further reduction in the QE. The article
reinforced the expectation. It's not a surprise," said Sim Moh
Siong, FX strategist for Bank of Singapore.
Still, traders said the WSJ article was enough to help nudge
the dollar higher against the yen, with additional impetus
coming from a firm tone in regional equities including Japan's
benchmark Nikkei share average.
An uptick in risk appetite, underpinned by a rise in
equities, could further spur selling of the low-yielding yen, a
traditional safe-haven currency.
Key for the yen this week is the outcome of the Bank of
Japan policy meeting due on Wednesday. The BOJ is expected to
retain a wait-and-see approach, having last year launched a
massive stimulus programme.
"We're expecting BoJ Governor Haruhiko Kuroda to reiterate
his pledge of achieving the 2 percent inflation target by 2015,
and the policy meeting may do little to halt the recent strength
in the low-yielding currency as the central bank preserves its
current policy," said David Song, analyst at DailyFX.
"However, the threat of a slowing recovery may spur a
greater rift within the BoJ, where we may see a growing argument
to implement a more dovish twist to the forward-guidance for
Overall, the dollar's moves were fairly subdued.
The euro held steady at about $1.3552, staying above
a two-month low of $1.3508 that had been set on Monday. Against
the yen, the euro rose 0.4 percent to 141.83 yen.
New Zealand dollar shot out of the starting block early on
Tuesday after inflation data strengthened the case for higher
interest rates at home.
The kiwi dollar last changed hands at $0.8324,
having rallied over half a U.S. cent after fourth-quarter
consumer price index rose 0.1 percent, confounding forecasts for
a 0.1 percent fall.
For an economy firing on all cylinders, the data
strengthened bets the Reserve Bank of New Zealand could lift
rates as early as next week, sparking a turnaround in the kiwi
which slid to a one-week low of $0.8212 on Monday.
Michael Turner, strategist at RBC said the breakdown of the
data confirmed the domestic economy was starting to generate
some inflationary pressures.
"Today's data leave that door (to a January rate hike) well
and truly ajar though we continue to see risks remaining skewed
toward March," he said.