* BOJ scraps monetary base, targets long-term rates
* Yen rises to highest since Aug. 26 vs dollar
* Fed seen holding rates steady, could hint at increase this
(Updates to U.S. trading, recasts open, adds analyst quote,
byline, changes dateline, previous LONDON)
By Dion Rabouin
NEW YORK, Sept 21 The U.S. dollar fell to a near
one-month low against the yen on Wednesday after the Bank of
Japan made a policy shift in its bid to stimulate the country's
stagnating economy that included the addition of a long-term
interest rate target.
Investors took a skeptical stance on the BOJ's ability to
generate inflation with other new measures such as scrapping its
focus on a monetary base while also committing to reaching its
elusive 2 percent inflation target.
The U.S. Federal Reserve is expected to keep interest rates
unchanged in a range of 0.25 percent to 0.50 percent when it
announces its policy stance at 2 p.m. EST (1800 GMT). Investors
will look for any hints of a rate increase later this year.
"The Bank of Japan effectively admitted the error of their
ways by saying that their attempt at negative interest rates and
standard quantitative easing was not working," said Boris
Schlossberg, managing director of FX Strategy at BK Asset
The BOJ maintained the 0.1 percent negative interest rate
for some of the excess reserves that financial institutions park
with the central bank. But it abandoned its base money target
and instead set a "yield curve control," under which it will buy
long-term government bonds to keep 10-year bond yields around
their current zero percent.
The dollar fell more than 1 percent against the yen to
100.56 yen in North American trading, its lowest since
Aug. 26 when U.S. gross domestic product numbers revealed the
United States' economy was growing slower than anticipated.
The greenback's drop is a reversal from earlier trade when
it was up more than 1 percent to a one-week high of 102.79 yen.
(Reporting by Dion Rabouin; Editing by Daniel Bases)