* Fed's "QE4" spurs broad dollar weakness
* Euro near highest in a week, pound in six weeks, Aussie in
* Fed ties policy to specific econ target; extends
* Yen down across the board, even against USD
* BOJ under intense pressure to ease more decisively
By Hideyuki Sano
TOKYO, Dec 13 The dollar was on defensive on
Thursday after the U.S. Federal Reserve unveiled a fresh
bond-buying stimulus programme but the yen languished at
nine-month lows against the U.S. currency on expectations of
more money printing in Japan.
The Fed surprised markets by explicitly linking its policy
path to unemployment and inflation but that had little immediate
impact because the Fed's latest economic projections suggested
no change in its previous pledge to keep rates near zero until
"We still hold the view that the Fed has fully delivered,
and that the numerical targets set a high threshold for the
eventual Fed policy exit, which still remains in a very distant
future," said Vassili Serebriakov, a strategist at BNP Paribas.
"This implies the Fed is on course to expand its balance
sheet substantially, a regime consistent with a weak USD
The dollar index slipped to one-week low of 79.711
after the Fed's decision on Wednesday and last stood at 79.891,
flat from late U.S. levels, with a six-week low of 79.568 seen
as an immediate support.
As expected, the Fed said it will keep buying $45 billion of
government bonds each month after 'Operation Twist' programme
expires this month, in addition to buying $40 billion a month in
agency mortgage-backed securities.
These bond buying will be funded by essentially creating new
money, so the Fed's $2.8 trillion balance sheet will likely
increase by around 40 percent in a year.
While the spectre of printing more money weighs on the
dollar, how much that stimulus will help the U.S. economy is an
open question, with some market players expecting diminishing
impact from the Fed's repeated quantitative easing.
"I can't remember shares falling on the day of announcement
of previous QE. U.S. bonds also fell even though what the Fed
will do is to improve the market's supply-demand dynamics," said
Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.
"The market's reaction raises concerns that the market may
be becoming more worried about the policy's side effect, which
includes deterioration in the Fed's balance sheet," he added.
U.S. shares ended flat, having erased earlier
gains, while long-dated U.S. bond prices fell, with 30-year bond
yield hitting a five-week high.
As the dollar wilted, the euro hit one-week high of $1.3098
on Wednesday and last stood at $1.3067, little changed on
The euro had additional support after former Italian prime
minister Silvio Berlusconi, who roiled the nation last week by
abruptly withdrawing support for Prime Minister Mario Monti's
technocrat government, offered to stand back and suggested Monti
could become the centre-right's candidate.
The Australian dollar hit two-month high of $1.0585
on Wednesday and last stood at $1.0550, flat on the day, while
the British pound also hit six-week high of $1.6173 before
stabilising at around $1.6140.
The yen, however, bucked the trend and weakened against the
dollar, as market players ramped up selling ahead of potentially
yen-negative events in coming days.
The dollar rose 0.5 percent to 83.59 percent, edging
near its March high of 84.187 yen. The yen also fell to its
weakest level in 1 1/2 years against sterling, which fetched
The Bank of Japan's Tankan survey is out on Friday and will
likely show sentiment among manufacturers deteriorated in the
three months to December, adding to calls for bolder action from
the BOJ to stimulate the world's third biggest economy.
The BOJ meeting will take place after Sunday's election
which looks set to see the opposition Liberal Democratic Party
clinch a resounding victory. LDP leader Shinzo Abe has been
pushing the BOJ for more powerful monetary stimulus.
Part of the reason for the rise in dollar/yen was higher
U.S. Treasury bond yields, which makes the dollar relatively
more attractive against its low-yielding Japanese peer.
"Dollar/yen has been moving up for a little while now and
you're seeing the trend continue. It gets moved a fair bit by
U.S. yields and those moved up despite what the Fed did, shows
you a bit of market positioning," said Joseph Capurso, a
strategist at Commonwealth Bank.
Elsewhere, the Swiss central bank is expected to keep its
cap on the franc at 1.20 franc per euro at its policy
announcement at 0830 GMT.