The dollar fell close to a record low against the yen on Wednesday before a Federal Reserve policy decision and looked unlikely to pare those losses while investors wait to see how the central bank might try to revive the flagging economy.

The yen's broad rise triggered concerns about fresh intervention from Japanese authorities and kept many investors from pushing it much higher.

The dollar was last down 0.1 percent on the day at 76.32 yen, having fallen as low as 76.11 yen on trading platform EBS, not far from its record trough of 75.94 yen hit in August. There was talk of large dollar bids between 76.20 yen to 76.00 yen, while downside stop-loss orders were cited at 75.90 yen, just under the dollar's record low.

Analysts said the greenback was unlikely to regain much ground against the yen before the end of the two-day Fed meeting later on Wednesday in which it is widely expected that U.S. central bank will strike a dovish stance.

Nonetheless, investors preferred to stay square rather than risk being wrongfooted by the Fed.

The dollar is consolidating ahead of the Fed outcome and it all depends on the nature of the statement, whether they are more dovish or not, said Marcus Hettinger, global FX strategist, at Credit Suisse.

If they opt for Operation Twist and decide to buy short dated Treasuries we could see yields at the near end rise and provide a lift to the dollar. But those gains are unlikely to last.

An 'Operation Twist' would rebalance the Fed's $2.8 trillion portfolio of bond holdings toward longer-dated debt, seeking to push down long-term borrowing costs.

Although such a stimulus move would be less damaging for the greenback than another round of quantitative easing -- which floods the system with more dollars and expands the Fed's balance sheet -- analysts said both measures suggested the central bank was running out of options.

Rates are already at historic lows, that's not the reason the U.S. economy isn't performing. The market might get the impression all these measures do not make much sense, said Lutz Karpowitz, FX strategist at Commerzbank.

Any move by the Fed to push overall rates lower is likely to prompt Japanese investors to cut exposure to U.S. Treasuries, weighing on the dollar.

In the options market, one-month dollar/yen implied volatility inched higher to 11 percent and risk reversals moved out in favor of yen buying. The rise reflected gains in the spot market although traders said the risk of intervention was likely to cap moves higher.


The euro and the dollar both rose against the Swiss franc, on persistent market talk the Swiss National Bank is looking to lift its euro/Swiss intervention target to 1.25 francs from 1.20. The SNB has declined to comment on the rumors.

The euro climbed 0.5 percent against the Swiss franc to 1.2216 francs.

Against the dollar, the euro slipped 0.4 percent to $1.3654, hurt by a slide in European shares and sentiment still brittle due to the euro zone debt crisis. Traders said there were downside stop loss orders at $1.3640 but Middle Eastern demand was providing support.

Some analysts said talk of a rise in the franc's floor had prompted investors to buy euros. In the absence of any move from the SNB, those investors were cutting long euro positions and contributing to its slide.

Barclays Capital slashed their forecast for the euro to $1.33 in one month and $1.25 in three months given mounting concerns Greece will default on its debts and increase pressure on Italy and Spain's weak fiscal positions.

Sterling hit a 8-month low against the dollar after dovish Bank of England minutes.

Sterling fell to $1.5613 and a 2-1/2 year low of 119.23 against the yen after the minutes bolstered expectations of more quantitative easing in the UK.