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The Bank of Japan could ease monetary policy if the yen soars towards an all-time high against the dollar, and threatens a fragile economic recovery.
As long as the yen's climb is spread over several weeks or months, the central bank is expected to leave policy unchanged, with solid exports to Asia underpinning Japan's export-driven growth. But the Bank of Japan is ready to act if expectations of further monetary easing by the Federal Reserve drive down the dollar/yen exchange rate, fast enough to damage Japanese business sentiment.
Still, traders say it would probably settle for a minor tweak of policy rather than a radical change.