TOKYO: 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 84.00 yen.
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 US levels and off a 16-month high of 112.59 yen hit on Wednesday.
Center>Copyright Reuters, 2012
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