SYDNEY The yen eased in early Asian trade on Tuesday with investors wary ahead of the outcome of the Bank of Japan policy meeting on the off-chance that it might announce additional easing measures.
Economists polled by Reuters generally expect no policy action but see the central bank possibly taking further steps to curb volatility in the bond market, which threatens to undermine the bank's growth objective.
The dollar edged up 0.1 percent to 98.85 yen, pulling away from a two-month low around 94.98 plumbed on Friday. The euro was also 0.1 percent higher at 131.08, having bounced off Friday's low of 126.19.
"Inaction by the BOJ today could weigh on USD/JPY in the initial reaction, but we do not believe the impact will be particularly pronounced since a lot of the weaker USD/JPY longs have already been cleared out during last week's sell-off," BNP Paribas strategists wrote in a client note.
Traders said dollar/yen was also supported after Standard & Poor's revised its outlook on the U.S. credit rating to stable from negative.
But any feel-good factor for the greenback from S&P's announcement was pretty much offset by comments from St. Louis Fed President James Bullard, who said low inflation meant the central bank could stick to its aggressive stimulus program.
The dollar index .DXY slipped 0.2 percent to 81.683, partly because of a resilient euro, which held on to most of its 0.3 percent gains at $1.3257.
Markets were also keeping an eye on the Australian dollar after it came close to breaking below its 2011 trough in thin trade on Monday, when local financial markets were closed for a public holiday.
The Aussie last traded at $0.9448, having fallen as low as $0.9393 on Monday, within a whisker of its 2011 trough of $0.9388. A break there would take it back to lows not seen since September 2010.
Currency bears took a swipe at the Aussie on Monday after a batch of data over the weekend showed economic growth in China, Australia's single biggest export market, could slow further in the second quarter.
Goldman Sachs this week joined a growing number of analysts who have downgraded their forecasts for the Aussie since its 9-percent fall from near $1.0400 in early May.
They now have a 12-month target of $0.8500, down from $0.9000 previously. On a three-month view, they see the Aussie at $0.9200, down from $0.9700.
(Editing by Wayne Cole)