* BOJ boosts asset buying by 10 trln yen
* It will review policy goal as wanted by new leader
* Tension over U.S. fiscal cliff helps yen, hurts euro
By Hideyuki Sano
TOKYO, Dec 20 The yen firmed on Thursday after
the Bank of Japan, as expected, eased monetary policy,
increasing its asset purchases by 10 trillion yen and saying it
would review its policy goal in a likely move towards adopting
an inflation target.
With expectations matched, traders took profits on their
bets against the yen, with the end-year holiday period
approaching, and the dollar fell 0.45 percent on the day to
On Wednesday, the dollar hit a 20-month high of 84.62 yen,
gaining more than six percent in the past five weeks on
anticipation that Japan's new government would push the BOJ to
take more aggressive easing steps.
In a move seen as an attempt to placate incoming prime
minister Shinzo Abe, who has called for unlimited easing to
achieve 2 percent inflation, the BOJ also said it would review
its stance on price stability. At present, the BOJ has a less
explicit "goal" of 1 percent inflation.
While profit-taking ahead of holiday seasons is likely to
cap the dollar/yen for now, traders said the yen is likely to
remain handicapped by expectations that the BOJ will pushed by
the government into printing more money.
Some analysts said the BOJ's new funding scheme to support
lending, while less noticed in markets than other measures,
potentially could weaken the yen.
The BOJ said it would provide unlimited funds to match any
increase in lending by banks -- in any currencies and anywhere
in the world.
"The BOJ is saying it will provide funds if investors want
to invest in foreign bonds... This does nothing when markets are
risk-off but as soon as markets become risk-on, this is going to
have a huge impact and will speed up fall in the yen," said
Seiya Nakajima, chief economist at Itochu Corp.
The euro stood at 111.32 yen, down about 0.45
percent from late U.S. levels and off a 16-month high of 112.59
yen hit on Wednesday.
NO CHRISTMAS PRESENT
The euro also slipped on the dollar slightly to $1.3213
, having slipped from an 8-month high of $1.33085 reached
on Wednesday after German business confidence data beat market
The euro had gained earlier thanks to a fall in southern
European countries' bond yields.
But it later gave up gains against the dollar, while the yen
also rebounded from multi-month lows, as talks to resolve the
U.S. fiscal impasse appeared to take a turn for the worse.
The Republicans announced plans to put an alternative tax
plan to a vote in the House this week, prompting President
Barack Obama to threaten to veto it should Congress approve,
threatening to unravel progress made over the last week.
"Market players were optimistic until a couple of days ago
but now it looks like we may not get a Christmas present, or
something even after the year-end," a trader at a Japanese bank.
The Australian dollar took a hit as well, slipping to
one-week lows of $1.0464 to stand more than a full cent
below last week's three-month peak before recouping losses to
last trade at $1.0483.
Also under pressure, the New Zealand currency slid to a near
two-week low around $0.8330 after data showed the
economy slowed more than expected in the third quarter.
Gross domestic product expanded a mere 0.2 percent in the
quarter, half of market expectations. There was a downward
revision of second-quarter growth to 0.3 percent.
"It means there's more chance of a rate cut than a hike in
2013, but our base case remains steady policy for a long time to
come," said Michael Turner, strategist, RBC Capital Markets.