The yen fell across the board on Wednesday after a Federal Reserve statement cooled expectations for a near-term U.S. interest rate cut and boosted stocks and other riskier assets.

The dollar also declined against other major currencies. Although the Fed's statement did temper expectations that the U.S. central bank will cut interest rates, it did little to change a view that yield spreads will keep moving against the greenback.

Carry (trading) is moving in lockstep with stocks, so we're seeing a weaker yen, said Kathy Lien, senior currency strategist at But as for the dollar, the divergence between the U.S. and euro-zone (interest rate) policy direction is continuing to hurt it against the euro.

The Fed left interest rates on hold at 5.25 percent on Tuesday, as expected, and acknowledged that financial markets have been volatile and tightening credit conditions have raised downside risks to the economy.

But the Fed reiterated that controlling inflation remains its number one policy concern and said that, despite the increase in risks to growth, the U.S. economy was still likely to expand at a moderate pace in coming quarters.

The statement sent stocks higher, U.S. government bonds down and emerging market spreads tighter in a sign that risk appetite is improving after a sharp deterioration over the past few weeks triggered by fears of a global credit shortage.

The yen is bucking the trend as the greater stability in the capital markets favors some renewed interest in yen-carry strategies, strategists at Brown Brothers Harriman wrote in a note to clients.

In carry trades, investors borrow in low-interest-rate currencies such as the yen so they can invest in assets denominated in higher-yielding currencies such as the Australian dollar.

In early U.S. trade the dollar was up 0.4 percent at 119.25 yen, more than 2 yen up from this week's four-month low.

The euro was up 0.8 percent at 164.60 yen. Against the dollar, it rose 0.4 percent to $1.3802, within around half a cent of a record high hit in July.

The dollar index (.DXY: Quote, Profile, Research), a measure of the greenback's value against a basket of six major currencies, was down a quarter of a percent, erasing most of its gains made in the previous session and heading back toward a 15-year low hit on Monday.

Financial markets had gone into the Fed meeting pricing in at least one quarter-percentage-point rate cut by the end of the year. They have since scaled that back to around a 75 percent probability of a single rate cut.

The dollar is likely to lose its interest rate advantage further in coming months, with the European Central Bank having already signaled it is likely to raise rates in September.

The Australian dollar rose 0.75 percent against the U.S. dollar to US$0.8613 after the Reserve Bank of Australia raised interest rates a quarter point to 6.5 percent.

That is the highest cost of borrowing in Australia in 11 years, and maintains the Aussie dollar's status as one of the highest-yielding currencies in the industrialized world.

(Additional reporting by Natsuko Waki)