* BOJ expected to hold steady but could hint at more easing
* Japan GDP contracts on Oct-Dec, building case for more
By Ian Chua and Lisa Twaronite
SYDNEY/TOKYO, Feb 14 The yen slipped against the
dollar and euro on Thursday as investors awaited a Bank of Japan
policy decision later in the session, as well as a meeting of
Group of 20 nations in coming days, for signals on how long the
yen's weak trend might last.
While the BOJ is expected to keep monetary policy steady, it
is also likely to underscore its readiness to expand monetary
stimulus again if risks to the outlook heighten.
The dollar traded at 93.47 yen, up 0.2 percent and
moving back toward a 33-month high of 94.465 set on Monday. The
euro stood at 125.74 yen, up about 0.2 percent and
moving closer to a 34-month peak of 127.71 scaled a week ago.
Data released earlier on Thursday showed Japan's economy
contracted for the third consecutive quarter in
October-December, adding weight to the new government's push for
radical policy steps to revive growth and whip deflation.
Many analysts and market participants expect the BOJ to
stand pat until the first rate review under its next governor,
scheduled for April 3-4. BOJ Governor Masaaki Shirakawa will
leave together with his two central bank deputies three weeks
ahead of the end of his five-year term, clearing the way for
slightly earlier implementation of aggressive monetary easing
under his successor.
"This leaves the risks that the BOJ actually does positively
surprise the market. Nonetheless, it may be more prudent to wait
and buy USD/JPY on the 90 handle, as the risk trade is somewhat
stretched," analysts at Societe Generale wrote in a note.
Since November, the dollar has soared around 20 percent on
the yen, while the euro has gained about 25 percent, as the BOJ
came under relentless political pressure to deliver aggressive
Markets turned nervous this week ahead of the BOJ meeting as
well as a two-day meeting of G20 finance ministers and central
bank officials starting on Friday, due to concerns that Japan
could come under pressure from international peers unhappy with
the steep fall in the yen.
On Thursday, South Korea's central bank explicitly cited
"the new Japanese government's expansionary policy operations"
as one of the "potential uncertainties" to South Korea's growth
A G7 statement, designed to cool international currency
tensions, caused some market confusion after Japan said the
statement condoned its reflationary policy, while a G7 official
Summing up the frustration, the Bank of England chief on
Wednesday said the G7 statement should be taken at face value
and anonymous officials should not try to reinterpret it.
Against the dollar, the euro was steady at $1.3450 after
earlier rising to a one-week high of $1.3520. Resistance
is seen around $1.3530, the 50 percent retracement level of its
Feb 1-11 fall.
Underpinning the euro, data on Wednesday showed output at
euro zone factories rose for the first time since August at the
end of last year, a sign the single currency bloc was slowly
starting to pull out of recession.
"Some investors are confused as to the future course of the
euro, since its recent rise wasn't due so much to fundamentals,"
said Kimihiko Tomita, head of forex at State Street in Tokyo.
Commodity currencies fared well with the Australian dollar
rising to a one week high of $1.0370, pulling away from
a four-month trough of $1.0222 plumbed on Tuesday.