* Yen recovers from one-week lows
* BOJ plans negative rates at core of future easing -sources
* Dollar index edges down a week before Fed decision
By Jemima Kelly
LONDON, Sept 14 The yen recovered from one-week
lows against the dollar and euro on Wednesday, as investors
doubted that reports the Bank of Japan was considering further
monetary easing measures would turn into a source of significant
weakness for the yen.
Sources familiar with the BOJ's thinking said the central
bank would consider making negative interest rates the
centrepiece of future easing by shifting its prime policy target
to interest rates from base money.
But when the BOJ shocked markets in January by cutting rates
below zero for the first time in an attempt to weaken the
currency, the yen reaction was only temporarily - and since then
it has gained almost 20 percent.
"We do expect them (the BOJ) to tweak policy next week, so
we do look for a small deposit rate cut and maybe some further
support for bank lending - some technical tweaks - but
ultimately, is that going to be enough to sustainably weaken the
yen?" said HSBC currency strategist Dominic Bunning, in London.
"We would argue no. The big bazookas have been used and then
yen already looks in slightly undervalued territory so it's very
hard to generate this significant yen weakness."
HSBC sees fair value for the dollar at between 93 and 99
yen, and expects the dollar to trade at 95 yen by year-end.
The dollar gained as much as 0.7 percent after the initial
reports on further BOJ easing, hitting 103.35 yen, its
strongest since September 6. But by 1050 GMT it had fallen back
to 102.66 yen, leaving it flat on the day.
The euro initially gained 0.9 percent to hit a nine-day high
of 116.085 yen before also falling back to 115.25 yen,
up just 0.2 percent on the day.
Societe Generale macro strategist Kit Juckes said the BOJ
would be able to weaken the yen.
"If they (the BOJ) come out more committed now, particularly
into a rising U.S. yield environment, I think they can make a
weaker yen stick," he said. U.S. long-term yields have risen in
the past month, hitting a three-month high on Tuesday.
The greenback edged down against a basket of major
currencies, having hit a one-week high the previous day.
The U.S. Federal Reserve's next policy meeting begins in a week,
with markets pricing in just a 15 percent chance of an interest
rate hike this month, according to CME FedWatch.
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(Additional reporting by Shinichi Saoshiro in Tokyo; editing by