(Recasts after start of European trading)
* Major currencies little changed ahead of big events
* Investors doubt BOJ can cheapen yen
* 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 0.3 percent against a broadly weaker greenback
to 101.645 yen, having risen almost 20 percent over the
past 12 months despite the BOJ's best efforts to weaken it.
The dollar dipped 0.2 percent against a basket of major
From Frankfurt, Esther Reichelt said she expected a quiet
day, though thin trading volumes could lead to some exaggerated
moves not driven by fundamental factors.
"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.
"It will be difficult for the BOJ to come up with a measure
that will significantly push down the yen," said Koji Fukaya,
CEO of FPG Securities in Tokyo.
Dealers note 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 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.
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(Additional reporting by Hideyuki Sano in Tokyo; Editing by