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Dollar drifts ahead of Fed decision

JIJI

The dollar stayed in a narrow range just above ¥99 Wednesday in Tokyo ahead of the U.S. Federal Reserve’s monetary policy decision.

At 5 p.m., the dollar was at ¥99.07-08, down from ¥99.24-25 at the same time Tuesday. The euro stood at $1.3350-3352, against $1.3349-3351, and at ¥132.27-29, compared with ¥132.49-50.

The greenback rose to around ¥99.30 in midmorning trading in line with a surge in Tokyo stocks. But the currency lost steam as the equity market cut its gains in late afternoon trading.

Dollar-yen trading was slow because many players took to the sidelines prior to the Fed’s monetary policy announcement.

At its two-day Federal Open Market Committee meeting set to end early Thursday Japan time, the U.S. central bank was widely expected to decide to start scaling back its asset purchases.

An increasing number of market participants were forecasting that the Fed would opt to reduce the monthly purchase amount by $10 billion to $15 billion from the current pace of $85 billion.

The initial size of the Fed tapering “is highly likely to be small since recent U.S. economic indicators showed somewhat weak readings,” an official at a major trust bank said.

It is “desirable” for the Fed to limit the size of the expected scaling back to around $10 billion, to minimize the risk of an interest rate spike and stock market tumble, an official at a major foreign bank said.

Few players anticipate a change in the Fed’s forward guidance on when to start raising its interest rate target, according to traders.