By: Hillel Fuld

The JPY displayed wide losses on Monday as the Bank of Japan’s policy change to expand a fixed rate fund supply scheme disappointed investors who were anticipating more aggressive measures to counter deflation.

After an emergency policy meeting, the BOJ said it would increase the volume of funds to be offered in its fixed-rate fund supply operation to 30 trillion JPY ($351.4 billion) from the previous 20 trillion yen.

The BOJ also announced it would offer fixed-rate loans to banks with a maturity of six months, adding that it would keep its overnight call rate target the same at 0.1 percent.

"The additional easing measures announced by the BOJ were only in line with market expectations and fuelled dollar-selling due to disappointment," said Masafumi Yamamoto, chief FX strategist for Japan at Barclays Capital.

If BOJ Governor Masaaki Shirakawa, in a news conference later on Monday, mentions the possibility of shifting toward monetary easing via steps such as increasing the amount of banks' current account balances at the BOJ, the market reaction may shift, but that seems extremely unlikely at this point, Yamamoto said.

The USD pared its gains versus the yen and last stood at 85.38 yen, up 0.2 percent on the day but down from around 85.90 yen just before the BOJ's decision was announced.

The USD fell to a 15-year low of 83.58 yen on trading platform EBS last week, hurt by concerns that the U.S. economy may fall into a double-dip recession and falls in U.S. Treasury yields, as well as a market perception that the U.S. Federal Reserve was more willing to take aggressive quantitative easing steps compared to the BOJ.

The EUR, which had increased to as high as 109.56 yen earlier, shed its gains and was little changed on the day at 108.78 yen.

Against the dollar, the euro dipped 0.2 percent to $1.2739