* Dollar recovers vs yen after hitting nearly 4-week low
* Falls vs euro after Fed cuts rate path for coming years
* RBNZ keeps rates steady, retains easing bias
(Updates prices, adds comments)
By Patrick Graham
LONDON, Sept 22 The dollar fell to its lowest in
a week against the euro but recovered some ground against the
yen on Thursday after the U.S. Federal Reserve meeting balanced
hints of a rise in interest rates this year with cuts in the
longer term outlook.
On balance the Fed's message on Wednesday did not go as far
as some in currency markets had expected towards outright
promising a rise in borrowing costs by the end of the year.
Allied to a reduction in the number of rate rises it
forecasts in 2017 and 2018, that was enough to knock the
greenback to a nearly 4-week low of 100.10 yen in Asian trading.
But there were also three votes for a rise in rates on the
Fed's policymaking committee and that helped bring the dollar
back into positive territory on Thursdsay, up 0.4 percent from
Wednesday's close in New York at 100.73 yen.
"The announcement constitutes a 'hawkish hold'," said Kit
Juckes, a strategist with Societe Generale in London.
The euro gained 0.4 percent to $1.1229, its highest since
Friday and taking it firmly back into the middle of a
$1.09-$1.15 range it has held since March.
Analysts from another major French bank, BNP Paribas, also
recommended selling the yen and buying the dollar in expectation
of a December rise in rates.
A stronger yen has been the most consistent trade of the
past year among major currencies, backed since January by the
growing conviction that the Bank of Japan is running out of
ammunition to weaken the currency and get inflation rising.
Wednesday's policy overhaul by Tokyo does not appear to have
shifted that conviction, although the reaction to its shift to
targeting yields on government bonds has been volatile and
opinions differ widely on its implications.
"You have some people saying that it is the end of
quantitative easing and others that it is a stepping stone
towards a number of new measures," said Richard Benson, co-head
of portfolio investment at Millennium Global in London.
"If it is just the first step, the second may be too far
away to start trading right now. But you would only need one ...
story about issuing (government bonds) into the 10-year (area)
to change that."
If the Bank of Japan is going to keep 10-year yields at zero
percent, then any issuance by the government of that duration
would come at zero cost, and likely be swallowed substantially
by continuing central bank buying - adding up to direct
financing of the budget that has been speculated for months.
Benson said the market was now looking for a new story to
play in the weeks ahead - with the U.S. presidential election
potentially top of the list. The first Clinton-Trump debate is
Officials from Japan's finance ministry, Financial Services
Agency and the Bank of Japan, also met on Thursday to discuss
issues in global financial markets.
Jasslyn Yeo, global market strategist for JP Morgan Asset
Management in Singapore, believes the dollar would probably head
lower against the yen going into the year-end, and expects the
greenback could soon fall below its August low of 99.55 yen.
"Yesterday's new (BOJ) framework is not new easing. I think
it more represents a softening stance towards banks and other
financial institutions likely due to concerns and backlash over
profitability and financial stability," Yeo said.
(Additional reporting by Masayuki Kitano in Singapore; Editing
by Jeremy Gaunt)