* Yen falls after BOJ announces new funding operations
* BOJ's Shirakawa: Low rates will have long-term yen impact
* Dollar down on risk demand, Aussie up after RBA rate rise
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By Naomi Tajitsu
LONDON, Dec 1 (Reuters) - The yen fell broadly on Tuesday
after the Bank of Japan announced more measures to ease monetary
policy to help the ailing economy following an emergency
meeting, while holding interest rates at 0.1 percent.
Despite its gains against the yen, the dollar fell against
other major currencies as risk appetite improved after more
clarity about the debt situation in Dubai eased some concerns
about the region's stability.
The yen was down broadly on the day, but pared losses as the
BOJ's decision to provide three-month funds at rock-bottom rates
had surprised some in the market who had been expecting more
aggressive action to stimulate the nation's economy.
Addressing recent strength in the yen, which shot to a
14-year high against the dollar last week, BOJ Governor Masaaki
Shirakawa said the central bank's commitment to keeping rates
low would have an effect on currencies in the long run.
He added the yen's rise and sluggish stock prices had led to
Tuesday's introduction of the new operation. []
"The message is that the BOJ isn't completely indifferent to
currency rates, and this should at least be marginally yen-
negative," said Adam Cole, global head of currency strategy at
RBC in London, while acknowledging the yen's initial reaction to
the comments had been limited.
"But today's announcement should have little material impact
on monetary policy."
Shirakawa spoke to reporters after the BOJ introduced a new
operation to provide 10 trillion yen in three-month funds at a
fixed rate of 0.1 percent in a bid to enhance monetary easing by
trying to bring down longer-term rates. [].
Despite Shirakawa's comments, analysts said there was little
standing in the way of more yen strength against the dollar so
long as U.S. interest rates also remain essentially at zero.
By 0915 GMT, the dollar <JPY=> traded 0.7 percent higher on
the day at 86.92 yen, after climbing as high as 87.54 yen
earlier in the day.
The dollar has suffered against the yen in past months,
pushing it as low as 84.82 yen late last week, a level not seen
since mid-1995, as dollar interbank borrowing costs have fallen
below yen ones this year.
The euro <EURJPY=R> rose 1 percent to 130.97 yen, while
other cross/yen pairs rallied as much as 2 percent on the day.
The euro <EUR=> rose 0.4 percent to $1.5065 as investors
warmed to risk after restructuring plans by Dubai World, which
has been the centre of concerns about the region's debt
position, eased some woes about the area's financial health.
The dollar index <.DXY> fell nearly half a percent to
74.550, while European share prices <> rallied 2 percent.
MORE DOLLAR/YEN WEAKNESS?
The Australian dollar <AUD=D4> rose 0.7 percent to $0.9224,
after the Reserve Bank of Australia raised interest rates as
expected on Tuesday.
The currency reversed an earlier slide during choppy trade.
Australia's central bank lifted its key cash rates by 25
basis points to 3.75 percent, saying three hikes in a row was a
material adjustment that would help sustain economic growth.
[]
Analysts anticipated more dollar/yen weakness after markets
had been wrong-footed on expectations for bolder policy steps on
Tuesday such as expanding BOJ purchases of government bonds to
depress yields and help ease deflationary pressures.
"It seem the BOJ aimed to ease the yen's rise by depressing
short-term rates to fix the rate gap between three-month rates
between the yen and the dollar," said Tetsuya Inoue, chief
researcher at Nomura Research Institute in Tokyo.
"But this was all they offered and came short of
expectations. It was inevitable the market was sold on
disappointment."
The BOJ has been under increasing political pressure to help
avert recession, but Tuesday's decision is seen as a way to
avoid a return to the BOJ's narrow form of quantitative easing,
under which it slashed rates to zero and flooded markets with
cash in 2001-2006.
(Additional reporting by Tokyo Forex Team, editing by Stephen
Nisbet)
((naomi.tajitsu@reuters.com; +44 207 542 5830; Reuters
Messaging: naomi.tajitsu.reuters.com@reuters.net))
