Dollar fell against the Japanese yen in Asian trade on Monday, despite Tokyo's announcement of emergency policy aimed at curbing the rise of yen.
In a move to boost liquidity in the markets, Bank of Japan (BoJ) unveiled a new six-month low-interest loan program that hikes to 30 trillion yen ($335 billion) the amount that banks will have access to. BoJ's $236.4 billion worth three-month funds-supplying operation is already under way.
However, the move failed to buoy investors and analysts who were expecting bolder action from the BoJ, especially in the light of Prime Minister Naoto Kan's announcement on Friday that the government was prepared to take bold action to curb yen's rise.
In mid-morning deals the dollar was trading at 84.85 yen, down from 85.19 on Friday, while the euro had slipped to 107.97 yen from 108.65.
The markets now eye a meeting between Kan and BoJ Governor Masaaki Shirakawa late on Monday. As expected, Kan is likely to announce policy initiatives to lift morale and boost recovery.
Following news of the emergency meeting, the Nikkei average had risen as much as 3 percent, after hitting a 16-month low last week.
But the stocks and the currency reversed course after the less-than-upbeat outcome of the BoJ meeting, with Nikkei trimming gains to finish with a rise of 1.8 percent and the yen inching upwards to 85.12 against the greenback.
The central bank also said on Monday it was holding key interest rate at an ultra-low of 0.1 percent.
Yen is hurting Japanese exporters. Japan had earlier in the month downgraded its assessment of industrial production for the first time in 19 months as yen's rise complicated the uncertainty over the strength of global economic recovery.
With his ruling Democratic Party heading into a leadership vote next month, pressure is mounting on Prime Minister Kan to reassure the exports sector and set out policies to help boost recovery.
Japanese government has frequently intervened in currency markets to weaken yen, the biggest such intervention taking place in 2004 when it sold 35 trillion yen ($400 billion), the equivalent of more than a third of the annual budget, to try to stop yen's runaway rise and fight deflation.
Japan has not meddled in the currency markets since then.
There are limits to what the government can do to curb yen's rise as U.S. has been putting pressure on China and Japan for quite some time to let their currencies appreciate against the dollar. President Obama has time and again called for its big trade partners to encourage domestic demand to help bridge the US trade deficit.
