* Major currencies little changed ahead of big events
* BOJ's next step seen as cutting rates and steepening yield
* Investors doubt BOJ can cheapen yen
By Hideyuki Sano
TOKYO, Sept 20 Major currencies came to a
standstill on Tuesday as investors looked to this week's Bank
of Japan and Federal Reserve policy meetings, with speculation
rife that the Japanese central bank could make major changes to
its stimulus programme.
The dollar stabilised at 101.88 yen after having
dipped 0.4 percent on Monday though it remained well anchored in
its trading range of the past weeks between 101.20 and 103.35.
BOJ officials have suggested in recent weeks that there is
room to cut interest rates further despite criticism that they
are hurting financial institutions and even damaging economic
Indeed, the BOJ could make negative interest rates the
primary focus of its monetary policy at this week's review.
The central bank has also acknowledged the potential costs
of unorthodox policy, prompting speculation the BOJ 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 rising trend this year 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 fact, 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 as its policy decisions largely disappointed markets.
"The BOJ may not take easing steps this time, in which case
the dollar/yen could test 101 or 100 yen," Fukaya added.
Dollar/yen options pricing suggests the market thinks the
risk of the dollar falling below 100 yen is relatively small.
"There will be very volatile intraday moves. But at the end
of day, the dollar/yen may end up staying at similar levels,"
said Ayako Sera, market economist at Sumitomo Mitsui Trust Bank.
Dollar/yen overnight implied volatility was at
31.7/36.8 percent, way below the 50 percent seen before the
BOJ's previous meeting and the 45 percent in effect before the
Brexit referendum in June.
This reduction in volatility came about despite the Federal
Reserve meeting generating more uncertainty for markets.
Some Fed policymakers have struck a hawkish tone in recent
speeches, saying the U.S. central bank is ready to lift interest
rates in the near future.
While the overwhelming consensus is for the Fed to hold
rates steady this week, some market players expect it to drop a
clearer hint that it is ready to raise rates.
That should support the dollar broadly at a time when most
other central banks in the world remain in an easing cycle.
In early Tuesday trade, the dollar's index against a basket
of six major currencies slipped to 95.846 from
Friday's two-week high of 96.108.
The euro stood at $1.1174, bouncing back from
Monday's low of $1.1149, which was its lowest level in nearly
The British pound edged up to $1.3040, slowly
recovering from a one-month low of $1.2996 touched last week
after the Bank of England left the door open to a further cut in
interest rates by the end of the year.
(Reporting by Hideyuki Sano; Editing by Shri Navaratnam and