TOKYO (AFX-ASIA) - The dollar was slightly higher against the yen in midafternoon trade ahead of key policy announcements in Japan this week, dealers said. The Council on Economic and Fiscal Policy will release details of its anti-deflation package tomorrow and the Bank of Japan will hold its policy board meeting on Thursday. State Minister for Economic and Fiscal Policy Heizo Takenaka said this morning that the government will decide whether to inject public funds into banks after the results of special inspections by the Financial Services Agency, which will be completed around end-March. His comments followed a report in the Nihon Keizai Shimbun this morning that the government, in the first phase of its anti-deflation package to be released Wednesday, will exclude public fund injections into banks to boost their capital. However, Minister of Financial Affairs Hakuo Yanagisawa said he cannot rule out the possibility of the need to inject public funds into banks as a pre-emptive measure to prevent a financial crisis. Industrial Bank of Japan foreign exchange manager Tatsuro Karitani said despite receding optimism about the anti-deflation package, the dollar remained top-heavy as investors are not completely ruling out the odds that there might be positive surprises from the announcement. "Foreign players, in particular, appear to be bracing for such a risk," he said. Dealers said while the yen is widely expected to resume its depreciation trend following tomorrow's anti-deflation package announcement, its downside is likely to be limited. "From a technical viewpoint, whether the yen can hold onto the 135.50 level is the key, with the breach of this level seen accelerating the pace of its decline," Karitani said. The outcome of the BoJ's policy board meeting on Thursday is not likely to have any major impact on the near-term trend of the yen, dealers said. Finance Minister Masajuro Shiokawa also said he will ask BoJ governor Masaru Hayami to increase the bank's monthly outright purchases of government bonds to 1 trln yen from 800 bln. Hideyuki Aizawa, a senior member of the ruling Liberal Democratic Party, said he wants to propose to the government that the BoJ should set up an annualised 1-2 pct growth target for consumer prices and that the bank should continue to provide ample liquidity towards achieving that target. IBJ's Karitani said the spillover of accounting worries involving US firms following the Enron scandal is also likely to continue to weigh on the dollar's upside.

Forex - Major currencies rangebound late morning Tokyo ahead of policy moves ---------------------------------------------------------------------------- TOKYO (AFX-ASIA) - Major currencies were rangebound in late morning ahead of key policy moves in Japan scheduled this week, although most investors believe that little of substance will be announced, dealers said. The government is due to release details of its measures to tackle deflation tomorrow evening, followed by the Bank of Japan's policy meeting the next day. Government officials reiterated this morning that they have failed to reach any agreement on a possible injection of public funds into major banks, a move that would be welcomed by financial markets. Finance Minister Masajuro Shiokawa also said he will ask BoJ governor Masaru Hayami to increase the bank's monthly outright purchases of government bonds to 1 trln yen from 800 bln yen. Ryohei Muramatsu, head of foreign exchange at Commerzbank, said investors believe the government is already backtracking on earlier suggestions it would introduce substantial measures, risking a further upset in the markets. "I hope they know what the market's thinking. It's like they're standing on the top of a ladder. They have to be careful how far backwards they can go," Muramatsu said. Calls from the government for further easing by the central bank are besides the point and would as likely have a negative impact on the economy as not, he said. "Why do they say something to the BoJ? They have a lot of things to do themselves. They should forget about the BoJ's credit policy. It's not their job. What we need is more steps in the political area," Muramatsu said. "If the BoJ increases outright purchases of government bonds, it would damage the credibility of the bank because it shows it is giving in to political pressure. "We may see bond yields rise to 1.6 pct if they increase purchases, which will not help the economy," he added. The central bank and financial markets are concerned that a further limited easing, while economically ineffective, would increase the possibility politicians will give up on fiscal discipline. Hideyuki Aizawa, a senior member of the ruling Liberal Democratic Party, said this morning that the party will propose the possibility of further fiscal stimulus under the government's anti-deflation measures to be released tomorrow. Aizawa heads the party committee on anti-deflation measures. Commerz's Muramatsu said the US economy, meanwhile, is showing increased signs of recovery, helping the dollar initially, although resistance by Japan's finance ministry will likely cap the currency at 135 yen. "The US economy is calm. It's only a question of when" it will recover. However, the finance ministry is concerned about the possibility that a sharp weakening in the yen would increase selling of other yen-denominated assets, such as shares and bonds, he added. Forex - Major currencies rangebound late morning Tokyo ahead of policy moves ---------------------------------------------------------------------------- TOKYO (AFX-ASIA) - Major currencies were rangebound in late morning ahead of key policy moves in Japan scheduled this week, although most investors believe that little of substance will be announced, dealers said. The government is due to release details of its measures to tackle deflation tomorrow evening, followed by the Bank of Japan's policy meeting the next day. Government officials reiterated this morning that they have failed to reach any agreement on a possible injection of public funds into major banks, a move that would be welcomed by financial markets. Finance Minister Masajuro Shiokawa also said he will ask BoJ governor Masaru Hayami to increase the bank's monthly outright purchases of government bonds to 1 trln yen from 800 bln yen. Ryohei Muramatsu, head of foreign exchange at Commerzbank, said investors believe the government is already backtracking on earlier suggestions it would introduce substantial measures, risking a further upset in the markets. "I hope they know what the market's thinking. It's like they're standing on the top of a ladder. They have to be careful how far backwards they can go," Muramatsu said. Calls from the government for further easing by the central bank are besides the point and would as likely have a negative impact on the economy as not, he said. "Why do they say something to the BoJ? They have a lot of things to do themselves. They should forget about the BoJ's credit policy. It's not their job. What we need is more steps in the political area," Muramatsu said. "If the BoJ increases outright purchases of government bonds, it would damage the credibility of the bank because it shows it is giving in to political pressure. "We may see bond yields rise to 1.6 pct if they increase purchases, which will not help the economy," he added. The central bank and financial markets are concerned that a further limited easing, while economically ineffective, would increase the possibility politicians will give up on fiscal discipline. Hideyuki Aizawa, a senior member of the ruling Liberal Democratic Party, said this morning that the party will propose the possibility of further fiscal stimulus under the government's anti-deflation measures to be released tomorrow. Aizawa heads the party committee on anti-deflation measures. Commerz's Muramatsu said the US economy, meanwhile, is showing increased signs of recovery, helping the dollar initially, although resistance by Japan's finance ministry will likely cap the currency at 135 yen. "The US economy is calm. It's only a question of when" it will recover. However, the finance ministry is concerned about the possibility that a sharp weakening in the yen would increase selling of other yen-denominated assets, such as shares and bonds, he added.