TOKYO, Dec 18, 2008 (AFP) - The dollar wallowed Thursday at a 13-year low against the yen as speculation grew that the Bank of Japan may cut interest rates to tame the yen's surge.
The greenback has taken a beating against both the yen and the euro after the US Federal Reserve slashed interest rates this week to virtually zero in a bid to reverse the dire economic situation.
The dollar seesawed against the yen, falling to 87.16 yen in Tokyo morning trade before rebounding to 87.42, still down from 87.95 late Wednesday in New York.
The euro strengthened to 1.4419 dollars from 1.4404, hovering near a level last seen at the end of September. The single European currency was flat at 126.02 yen.
Nearly two-thirds of market players are expecting the Japanese central bank to cut rates from the current 0.3 percent to a range of zero to 0.1 percent at a two-day meeting opening later Thursday, dealers said.
The meeting comes after a round of bigger-than-expected cuts by central banks around the world Wednesday from Europe and the Middle East to Hong Kong in the wake of the Federal Reserve move.
"If the BoJ does not lower rates (on Friday) it will be a catastrophe. While a rate cut will not bring down the yen that much, the impact will be greater if it fails to do anything," said Societe Generale's forex head Yuji Saito.
"Since other central banks have made cuts that surpassed market expectations, Japan can't be the only one standing doing nothing," he added.
The Bank of Japan is also likely to announce prospects for quantitative easing -- which means expanding the money supply -- in tandem with a similar move by the Fed in order to drive down the yen's value, dealers predict.
The Japanese central bank may also unveil fresh efforts to shore up the economy including buying commercial paper in an attempt to unlock a persistent liquidity crunch, dealers said.
Japanese officials have flirted with the idea of intervening in currency markets, but traders doubted they would take action unless the yen appreciates suddenly.