© Reuters. Illustration photo of a Japan Yen note © Reuters. Illustration photo of a Japan Yen note

By Tom Westbrook

SINGAPORE (Reuters) - The dollar and the yen both found support on Wednesday as traders finessed positions ahead of a U.S. Federal Reserve policy decision, while the Chinese yuan held gains as the outlook brightened for the world's second-largest economy.

Later in the day the Fed concludes its first meeting since adopting a more accommodative approach to inflation.

Yen buying reflects a belief that the bank may act on that stance, and weaken the dollar with further stimulus, while broader dollar support points to caution about such a bet.

The yen was last at a two-week high of 105.26 per dollar. Against other majors, the dollar crept higher after recouping a Tuesday dip though moves in morning trade were pretty small.

"There's a feeling in the market that maybe the Fed will try to act on its dovish tilt," said Rodrigo Catril, a senior currency analyst at National Australia Bank (OTC:NABZY) in Sydney.

"Our sense is that there's a risk there that the Fed doesn't do much more than what it's done already," he said, which could lift U.S. yields and weigh on the yen.

The Australian dollar edged down 0.1% to $0.7294 and the New Zealand dollar was a fraction softer at $0.6708. The euro (EUR=EBS) drifted down to $1.1837.

The Fed decision is due at 1800 GMT followed by a news conference from chairman Jerome Powell half an hour later.

Besides policy, where any changes would likely be a shift in its bond-buying programme to longer tenors, a major area of focus will be on the Fed's economic projections, especially where it figures inflation is headed.

"The three to 3.5-year projection horizon will give (Fed members) an opportunity to indicate how big an overshoot they expect will be required to get to the 2% average inflation target," said Standard Chartered (OTC:SCBFF)'s head of FX research Steve Englander.

"It will also give (them) an opportunity to indicate how much of an overshoot they are willing to tolerate."

Elsewhere the British pound has been rising from last week's lows with stronger-than-expected jobs figures overnight and opposition to a plan to breach the Brexit treaty.

It last sat at $1.2877 and at 91.87 pence per euro (EURGBP=).

The Chinese yuan also hung on to big gains won on Tuesday when better-than-expected economic data reinforced investors' perception that the world's second largest economy is leading the global recovery from the COVID-19 pandemic.

In offshore trade the yuan was last at 6.7835 per dollar having climbed as high as 6.7663 on Tuesday. [CNY/]

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