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Japan exports seen falling in August on weak foreign demand, firm yen

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Amid growing concerns over the side effects of any doubling down by the BOJ, Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp., said central banks in developed economies are "in a situation where they stop to assess the effects and prospects of the policies" they have carried out since the global financial crisis in 2008. But Fed Chair Janet Yellen said in August the case for higher rates had strengthened, highlighting the possibility of a near-term hike.

Singapore lost 0.4 per cent but Hong Kong's Hang Seng rose 0.6 per cent in thin trade. China and several other markets shut regionally for holidays.

The Bank of Japan and U.S. Federal Reserve both meet next week.

But another group of policy-makers believes that the BoJ should try to help Japanese banks, which complain that negative interest rates have squeezed their interest rate margins because they have not passed on negative rates to depositors.

Many market players expect it to indicate a preference for a steeper yield curve to cushion the blow on banks from negative interest rates, but there is also focus on whether the central bank will cut rates deeper into negative territory. It also reflects investors' views that inflation and economic growth - and therefore interest rates - will remain low for years to come.

While those views have been largely scaled back, central bank decisions will still be at the front and centre next week.

Stocks posted mixed results Wednesday, with the 30-company benchmark index ending in the red and other shares registering gains, after a report showed fund managers are hoarding more money in cash amid uncertainty over the trajectory of central bank stimulus globally.

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"Having just increased stimulus in August, the BoE won't be eager to add bond purchases or cut interest rates again", wrote Kathy Lien, managing director of FX Strategy at BK Asset Management. While some of this move has already been priced in as we can see from the graph, we expect more if the BOJ officially endorses this at their Sep 21-22 to signal to banks that they can lend more and longer.

Gold was steady at $1,314.64 XAU= an ounce, down about 1 percent for the week.

The yen climbed 25 percent against the dollar in the year up to June, when the safe-haven currency hit a two-and-a-half year high of 99 yen per dollar in the aftermath of Britain's shock vote to leave the European Union. It had briefly risen above 103.00 the previous day on speculation the BOJ would increase stimulus next week. The euro was slightly weaker at $1.1240 midday from $1.1242.

The 10-year US Treasury note yield stood at 1.697 per cent after sliding overnight to as low as 1.682 per cent.

The firm described the recent rise in government bond yields as "a splash of cold water to the face" of investors who were complacent about the "lower for longer" mindset.

Long-dated bonds have underperformed for much of the past month in line with a steepening yield curve in Japanese government bonds.

The Bank of Japan will try to steepen its yield curve, increasing the difference between short- and long-term yields, at a meeting next week, according to Morgan Stanley MUFG Securities Co.in Tokyo. The underlying measure gained 1 per cent on Thursday following a two- day drop of 1.5 per cent left the index at its lowest point since July 7 as Apple Inc extended gains into a fourth day and a rebound in crude prices boosted energy stocks.

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