(updates, adds details, fresh quote)
* Major currencies little changed ahead of big events
* Investors doubt BOJ can drive yen lower
* BOJ's next step seen as cutting rates and steepening yield
By Jemima Kelly
LONDON, Sept 20 The yen edged up against the
dollar on Tuesday as traders doubted that the Bank of Japan will
be able to meaningfully weaken the yen when it meets on
Wednesday, and betted that the U.S. Federal Reserve will not
raise interest rates.
The yen rose 0.1 percent against the dollar to trade at
101.82 yen, having risen almost 20 percent over the past
12 months despite the BOJ's best efforts to weaken it.
The dollar was flat against a basket of major currencies
Esther Reichelt, a currency strategist at Commerzbank
Frankfurt said she expected a quiet day, though thin trading
volumes could lead to some exaggerated moves not driven by
"Everybody is just waiting for the BOJ and the Fed - why do
anything today?" she said. "Everyone has already positioned for
these events and there is no new information that could give
them a reason to reposition, so I expect a rather calm day."
BOJ officials have suggested in recent weeks that there is
room to cut interest rates further, having taken them into
negative territory for the first time earlier this year despite
criticism that they are hurting financial institutions and even
damaging economic sentiment.
The central bank has acknowledged the potential costs of
unorthodox policy, prompting speculation that it will probably
seek to steepen the yield curve to mitigate the impact of
negative rates on financial institutions.
Yet currency market players are not so sure such a step
would help to reverse the yen's rally, amid a growing sense that
the BOJ may be running out of ammunition.
"We doubt that just tweaking current policy steps in an
attempt to steepen the yield will prove effective at
re-weakening the yen on a sustainable basis," said Lee Hardman,
currency analyst at Bank of Tokyo Mistubishi. "The yen could
even strengthen if the BoJ refrains from easing tomorrow."
Dealers said that selling dollar/yen after the BOJ's policy
meetings has been a winning strategy this year - the yen gained
sharply following the BOJ's last three meetings.
Dollar/yen options pricing suggests the market thinks the
risk of the dollar falling below 100 yen is relatively small.
The overwhelming consensus ahead of the result of the Fed's
meeting, which will follow the BOJ's, is that it will hold rates
steady this week - only a 12 percent chance of a hike is priced
in, according to CME FedWatch.
But some market players expect the Fed to drop a clear hint
that it will raise interest rates this year. That should support
the dollar broadly at a time when most other central banks in
the world remain in an easing cycle.
For Reuters new Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Additional reporting by Anirban Nag; Editing by Hugh Lawson
and Raissa Kasolowsky)