TOKYO (AFP) - The dollar edged up against the yen in Asian trade Wednesday after the Federal Reserve dampened expectations of a US interest rate cut and Japanese machinery orders fell sharply, dealers said.
They said a decision by Australia's central bank to hike interest rates to a decade-high level of 6.5 percent boosted the local dollar as the currency became more attractive to investors even as they grew less risk averse.
The dollar rose to 118.99 yen in Tokyo morning trade from 118.82 in New York late Tuesday.
The euro firmed to 1.3753 dollars from 1.3736 but slipped to 163.24 yen from 163.56.
A much bigger-than-expected 10.4 percent slump in Japanese core machinery orders in June prompted players to unload the yen, said Toru Sasaki, chief foreign exchange strategist at JPMorgan Chase Bank.
Dealers said the sharp drop would make it harder for the Bank of Japan to justify raising its super-low interest rates from 0.5 percent in the face of political resistance to further monetary tightening.
The dollar was also supported by hawkish comments from the Fed on inflation that reduced expectations of a cut in US interest rates any time soon.
A rebound in US share prices after the central bank predicted continued moderate growth in the world's largest economy also helped investors to regain some of their risk appetite.
The yen had rebounded against other major currencies recently as turmoil on global financial markets prompted speculators to scale back risky bets funded by selling yen in exchange for higher yielding currencies.
Fed policymakers voted unanimously to hold rates at 5.25 percent, saying that although "downside risks to growth have increased somewhat," the main concern remains "the risk that inflation will fail to moderate as expected."
The Fed statement gave "a pretty hawkish stance on continuing inflationary pressures and a positive outlook on the economy," said Sasaki, who expects the next move in US interest rates to be another hike next year.
The central bank statement made only a short reference to problems in sub-prime mortgages for high-risk borrowers that have sparked fears of a wider credit crunch.
Commonwealth Bank of Australia economist Chris Tennent-Brown said the Fed continued to focus predominantly on inflation so as to reassure skittish investors and avoid exacerbating market volatility seen in recent weeks.
"History has shown that the Fed won't hesitate to swiftly change its policy stance and cut interest rates," Tennent-Brown said.
"One thing is certain, recent developments have put paid to speculation that the Fed will need to tighten again," he added.
The Australian dollar gained to 0.8576 US dollars after the Reserve Bank of Australia raised interest rates by a quarter point to try to tame inflation, up from 0.8547 ahead of the decision.