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Dollar/yen hits 156

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Bank of Japan leaves short-term rates near zero

(Updates prices)

By Tom Westbrook

SINGAPORE, April 26 (Reuters) - The yen hit its weakest

level in three decades against the U.S. dollar after the Bank of

Japan left interest rates on hold on Friday, leaving traders on

edge about the risk of official intervention.

The yen was 0.3% weaker at 156.1 per dollar

shortly after the BOJ's announcement, its weakest since 1990.

The yen also nudged down to its weakest almost 16 years at

167.38 per euro and its weakest in nearly a decade on

the Australian dollar.

The Bank of Japan left its short-term interest rate

target at 0-0.1% and made only small upward adjustments in its

inflation forecast. Markets had not expected a policy shift but

investors interpreted the decision as conservative as it did not

offer a projection of Japan's path to policy normalisation.

"The currency takeaway is certainly disappointment from

the lack of guidance coming from the Bank," said National

Australia Bank strategist Rodrigo Catril.

"To me the ... market is telling us it believes that the

BOJ policy is too loose and hence why the currency is so weak,"

he said.

"The Bank has the ability to do something about that by

changing its policy, and if it's not going to change the policy,

then we shouldn't expect the yen to strengthen."

The focus now falls on Governor Kazuo Ueda's tone and

outlook at his news conference at 3:30 p.m. in Tokyo (0630 GMT)

and whether the yen's weakness prompts an official response.

"If dollar/yen keeps going up, (intervention) wouldn't

surprise ... given you've had a lot of yen weakness and a lot of

very public pushback from Japanese officials," said Joe Capurso,

head of international economics at the Commonwealth Bank of

Australia.

"The market's not really taken it seriously, so at some

point they'll draw a line in the sand and say enough is enough."

The yen's 9.7% drop against the dollar this year is the

largest fall of any G10 currency, driven mostly by the wide gap

between U.S. and Japanese government bond yields, which is more

than 375 basis points at the 10-year tenor.

The yen has slipped past levels at 152 and 155 to the dollar

where traders had been wary of intervention. Japanese Finance

Minister Shunichi Suzuki said on Friday he was closely watching

currency moves and prepared to take full steps in response.

Elsewhere the dollar had dipped on softer-than-expected U.S.

growth data, even as Treasury yields rose on a

hotter-than-expected inflation indicator.

The euro rose 0.3% on Thursday to a two-week high

of $1.0728 following data showing the U.S. had grown at its

slowest pace in nearly two years in the first quarter. The

annualised rate of 1.6% missed economist forecasts for 2.4%.

The Australian dollar, which has been boosted by a

hotter-than-expected inflation reading this week, briefly topped

its 200-day moving average to hit $0.6539, before settling

around $0.6522 in Asia trade on Friday.

Sterling rose 0.4% on Thursday and was last at

$1.2503. The New Zealand dollar was a touch firmer in

Asia morning trade at $0.5960 and has gained in the previous

four sessions.