TOKYO (Reuters) – The Bank of Japan is expected to hold off on easing monetary policy next week but is gearing up for further action in October as the strong yen threatens to derail its forecast of a moderate economic recovery, sources said.

Having just loosened policy at an emergency meeting on Monday, the central bank is likely to stand pat at next week's rate review unless the yen shoots up at a pace of 1 to 2 percent in a single day after Friday's U.S. payrolls data for August.

If such sharp yen gains trigger yen-selling intervention by the finance ministry the BOJ is ready to leave it unsterilized, effectively easing policy by holding off from draining the extra yen that flows out to the market, sources familiar with the central bank's thinking said.

Otherwise, the BOJ is in no mood to ease policy further in September and is lining up its options for next month, when it is seen revising down its long-term economic and price forecasts in a semiannual outlook report due on October 28.

"Things have changed so much in the past few months, so we probably need to reconsider our forecasts, especially our price projections," one of the sources said.

"If we can't foresee positive price growth for years, it's hard to justify standing pat." Another source expressed a similar view. Both declined to be named due to the sensitivity of the matter.

There is no consensus yet on what the next step should be, but the list of options include a return to zero interest rates or an increase in the bank's government bond purchases.

The BOJ boosted its cheap loan scheme on Monday, bowing to government pressure for steps to protect a fragile recovery after the yen surged to a 15-year high against the dollar last week.

But the move did little to deter yen gains or falls in stock prices as investors saw it as a symbolic gesture that had barely any effect in supporting the economy and beating deflation.

That has led some BOJ officials to believe that bolder action is needed to send a clearer message to markets that the bank is determined to keep the strong yen from harming the economy.

Still, the BOJ is likely to hold off easing policy at the next rate review on September 6-7 to examine how Monday's decision to expand its fund supply tool will affect markets and fund flows.

Unless the yen heads toward its all-time high beyond 80 to the dollar at an alarming pace, the central bank hopes to spend more time examining the impact of market moves on the economy.

It sees its tankan quarterly business sentiment survey, due out on September 29, as crucial in measuring the strong yen's impact on the economy.

The BOJ may consider easing policy when it issues its outlook on October 28, or at a policy meeting due three weeks before that, if there is sufficient evidence that the yen's rise and a U.S. economic slowdown are damaging business sentiment enough to warrant action, the sources said.

Japan's economic growth slowed to a crawl in the second quarter, and analysts expect a further slowdown later this year as exports to the United States and China ebb and stimulus-driven consumption peters out.

The BOJ has also remained under government pressure to ease policy, but the outlook is being complicated by ruling Democratic Party powerbroker Ichiro Ozawa's decision to challenge Prime Minister Naoto Kan in a September 14 party leadership vote.

Ozawa has threatened to intervene in currency markets to curb the yen's rapid rise while saying that policy options for the BOJ are limited.

(Editing by Edmund Klamann & Kazunori Takada)

Follow Yahoo! News on Twitter, become a fan on Facebook

BANGKOK – Oil prices lingered near $75 a barrel Friday in Asia, largely holding onto a big gain the day before as investors put a positive spin on U.S. economic reports and Asian stock markets rose.

Benchmark oil for October delivery was down 30 cents at $74.72 a barrel at midday Bangkok time in electronic trading on the New York Mercantile Exchange. The contract rose $1.11 to settle at $75.02 on Thursday.

The Labor Department said first-time claims for unemployment benefits fell slightly last week, but are still above levels in a healthy economy.

The National Association of Realtors said the number of Americans who signed contracts to purchase previously owned homes rose 5.2 percent in July. That was 19 percent below the same month last year and home sales remain at the lowest level in more than a decade.

One brighter spot: Factory orders rose 0.1 percent in July, indicating some industrial growth.

The indicators were enough to spark more gains in Asian stock markets after a big jump on Thursday following a month of heavy selling amid evidence the global economic recovery is faltering.

In other Nymex trading in October contracts, heating oil fell 0.84 cent to $2.054 a gallon and gasoline fell 0.63 cent to $1.915 a gallon. Natural gas for October delivery rose 1.9 cents to $3.77 per 1,000 cubic feet.

In London, Brent crude fell 38 cents to settle at $76.55 a barrel on the ICE Futures exchange.

Follow Yahoo! News on Twitter, become a fan on Facebook

BEIJING (Reuters) – China on Friday offered a rare glimpse into its foreign exchange reserves, confirming that they are overwhelmingly allocated in dollars, while a central banker said the mountain of cash could face depreciation risks.

The Chinese government's currency reserves, the world's largest such stockpile at $2.45 trillion, are held roughly in line with what was described as the global average: 65 percent in dollars, 26 percent in euros, 5 percent in pounds and 3 percent in yen.

The report in the China Securities Journal, an official newspaper, cited unnamed reserve managers.

The allocation of Chinese foreign exchange reserves is considered to be a state secret, but analysts have long estimated that about two-thirds are invested in dollar assets.

Separately, Hu Xiaolian, a vice governor with the People's Bank of China, warned that depreciation loomed as a risk for foreign exchange reserves held by developing counties.

"Once a reserve currency's value becomes unstable, there will be quite large depreciation risks for assets," she wrote in an article that appeared in the latest issue of China Finance, a Chinese-language magazine published under the central bank.

She reiterated China's long-standing discomfort with a global financial system dominated by a single currency in the dollar.

"The outbreak and spread of the global financial crisis has highlighted the inherent deficiencies and systemic risks in the current international currency system," she said.

"A diversified international currency system will be more conducive to international economic and financial stability," she added.

To that end, developing countries must speed up reform of their financial markets, and China would work to promote greater cross-border use of the yuan, she said.

DIVERSIFICATION

There have been signs in recent months that Beijing has stepped up the pace of diversification of its foreign exchange reserves away from dollar assets.

Chinese net buying of Japanese debt has surpassed 1.7 trillion yen this year, far surpassing its record of 255.7 billion yen in 2005.

China has also raised holdings of South Korean bonds by 2.48 trillion won ($2.11 billion) in the first seven months of this year from 1.87 trillion won at the end of last year. However, Chinese investors only started buying South Korean bonds in the middle of 2009.

At the same time, China has slightly cut back its vast holdings of U.S. Treasuries, from $894.8 billion at the start of the year to $843.7 billion in June, according to the most recent data. China remains the biggest single holder of U.S. government debt.

But analysts have also warned against reading too much into the apparent shifts in the flow of cash from China. Like any investor with commercial interests in mind, Beijing has shown a readiness to shift its strategy depending on what it sees as good buys at the time.

The China Securities Journal laid out the prospects for a shift back to the dollar in the near term.

"It is unlikely that China will increase purchases of Japanese bonds in the coming months because the yen might weaken at any time," the newspaper said.

"China is very likely to increase purchases of U.S. Treasuries in September. The possibility for China to buy more Korean bonds can't be ruled out," it added.

(Editing by Ken Wills)

Follow Yahoo! News on Twitter, become a fan on Facebook