Yen falls as BOJ meets, Asian stocks muted

SINGAPORE (Reuters) – The yen fell as the Bank of Japan began a meeting on Wednesday that may signal its readiness to further loosen monetary policy to support the earthquake-hit economy and Asian stocks were muted after an interest rate rise in China.

Brent crude oil eased from a two-and-a-half year high struck amid war in Libya and unrest in the Middle East and gold sat just below a record scaled in the previous session.

Rising commodities prices and China’s fourth rate rise since October both fueled concerns about inflation that helped propel gold, traditionally seen as both a hedge against rising prices and a safe haven investment at times of geopolitical upheaval.

Tokyo’s Nikkei (.N225: Quote, Profile, Research) and MSCI’s index of Asia Pacific shares outside Japan (.MIAPJ0000PUS: Quote, Profile, Research) were both almost unchanged, following a similarly subdued session on Wall Street, where the S&P 500 (.SPX: Quote, Profile, Research) ended flat. (.N: Quote, Profile, Research)

The euro rose to around 121.30 yen, its highest in 11 months. The Australian dollar topped 88 yen for the first time since April last year and the dollar climbed to a six-month high of 85.23 yen.

The yen has been on a downward trend since a rare joint intervention by leading central banks to weaken it last month revived investor interest in the yen “carry trade” — a strategy of using cheap yen loans to fund higher yielding investments.

The Bank of Japan is expected to keep policy on hold at its two-day meeting starting on Wednesday, but signal its readiness to embark on further easing as damage from a March 11 earthquake threatens to tip the economy back into recession.

In contrast, the European Central Bank is seen certain to bump its key policy rate up 25 basis points from a record low 1 percent on Thursday to curb inflationary pressures, with markets already pricing in more tightening later in the year.

Brent crude eased 0.4 percent to $121.76 a barrel, having jumped to a two-and-a-half year high above $122 on Tuesday. U.S. crude also weakened 0.4 percent to $107.91 a barrel.

Gold traded around $1,453.15 an ounce, after rising as far as $1,456.85 on Tuesday.

(Writing by Alex Richardson; Editing by Ron Popeski)

Yen falls as BOJ meets, Asian stocks muted