[NEW YORK] The Japanese yen strengthened on Wednesday despite the Bank of Japan's effort to hammer it down with new long bond yield targets.

Meanwhile, the dollar eased as the Federal Reserve kept its rate steady but indicated a hike could come by December.

After a two-day meeting, BoJ policymakers set a target to raise government bond yields as part of their drive to kickstart inflation.

They also loosened a fixed target for the massive 80 trillion yen (S$1.06 trillion) annual asset-buying plan, saying it could instead fluctuate to give it flexibility in controlling bond yields.

If part of the aim of the policy was to drive down the yen, it failed. The yen pushed up by more than one percent to 100.33 to the dollar and 112.27 to the euro.

"Although the BoJ made it abundantly clear that they intend to achieve their yield target, the markets remain dubious," said Boris Schlossberg of BK Asset Management.

"The next several days will become a test of BoJ's new policy and if it fails to reach its mark, the dollar-yen rate could drift towards 100.00 as disappointment creeps in." Meanwhile, the dollar edged lower to US$1.1189 per euro after the Fed left its benchmark rate stuck at 0.25-0.50 per cent, saying it needs to see more evidence of firming of the economy.

But a split in the Fed's policy body, with three of ten Federal Open Market Committee members arguing for a rate hike now, underscored the increasing hawkish drift of the body.

"We judge that the case for an increase has strengthened, but decided for the time being to wait for further evidence of continued progress toward our objectives," said Fed Chair Janet Yellen.

Fresh FOMC forecasts released Wednesday "show an overwhelming majority of FOMC members anticipating one hike in the remainder of the year. The interest rate path for the coming years, however, was lowered further," said Harm Bandholz of UniCredit.

AFP