* BOJ holds steady as expected, hikes economic assessment
* Japan's Oct-Dec GDP contracts, building case for more
By Lisa Twaronite
TOKYO, Feb 14 The dollar and euro held their
gains against the yen on Thursday after the Bank of Japan kept
policy steady as expected, with investors looking ahead to a
meeting of Group of 20 nations in the coming days for signals on
how long the yen's weak trend might last.
The BOJ also revised up its assessment of the economy, as
recent falls in the yen and signs of a pick-up in global growth
give it some breathing space after it expanded stimulus just a
Some believe the BOJ might hold off on expanding stimulus
next month, and wait until the first rate review under its new
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 is the BOJ's 'lame duck session,' so it is natural
that they didn't do anything today, and perhaps not next month,"
said Citibank Japan chief FX strategist Osamu Takashima.
"But the market expects monetary easing under the new
governor," he added.
The dollar traded at 93.54 yen, up 0.3 percent and
moving back toward a 33-month high of 94.465 set on Monday. The
euro stood at 125.63 yen, up 0.1 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.
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 yen's steep fall.
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 this week, designed to cool international
currency tensions, caused some market confusion after Japan said
the statement condoned its reflationary policy, while a G7
official suggested otherwise.
Against the dollar, the euro was slightly lower, down about
0.1 percent at $1.3437 after earlier rising to a one-week high
of $1.3520 in the waning hours of North American trade.
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.
While the euro zone has shown some signs of stability, some
market participants wondered whether its performance lags actual
"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 succumbed late in the session, with the
Australian dollar pulling back to $1.0350 after rising to a one
week high of $1.0370. However, it remained well off a
four-month low of $1.0222 plumbed on Tuesday.