Yen steadies

The yen steadied against the dollar on Tuesday after a closely watched Bank of Japan report did little to change market expectations that the central bank would wait until next year to raise interest rates.
In its twice-yearly outlook on the economy and prices, the BoJ reiterated it would gradually adjust rates based on economic and price conditions, a message that was echoed by BoJ Governor Toshihiko Fukui.
The outlook report "confirmed that the BoJ's stance toward monetary policy from here on is unchanged", said Daisuke Uno, market strategist for Sumitomo Mitsui Banking Corp Uno said the release matched market expectations, and may have disappointed those who had looked for the BoJ to present a more upbeat view.
The BoJ kept overnight rates at 0.25 percent as widely expected earlier in the session. The vote was unanimous. Most market players believe the central bank will bump up rates to 0.5 percent in the first quarter of 2007, while a minority still see a chance for a move in December.
The dollar was at 117.50 yen as, up from around 117.35 yen just before the release of the BoJ report, but little changed from its levels in late US trading on Monday. It had climbed as high as 117.72 yen after the release of some lacklustre Japanese data earlier in the day. The euro edged down to 149.40 yen from around 149.50 yen in late US trading.
Against the dollar, the euro eased to $1.2715 from $1.2725. Data earlier in the session showed Japan's unemployment rate ticked up to 4.2 percent in September from 4.1 percent the prior month. Household spending plunged 6.0 percent in September from a year earlier, much worse than expected and down for a ninth straight month.
Economists said the figures may mean that Japan's gross domestic product contracted in the third quarter and could make it difficult for a rate increase this year.
"If GDP comes in negative, the BoJ will probably be on hold, at least until next year," said Hiroshi Shiraishi, an economist at Lehman Brothers in Tokyo.
The yen has suffered even as the central banks of Switzerland, Russia and the United Arab Emirates have indicated in the past two weeks interest in shifting some foreign reserves into the yen, or have already done so.
Masafumi Yamamoto, a currency strategist at Nikko Citigroup, said the reserves of Switzerland and the UAE were relatively small and any yen buying would not offset Japan's low interest rates and the steady demand for higher-yielding foreign assets by Japanese investors.