By Lisa Twaronite
TOKYO (Reuters) - Asian shares turned lower on Wednesday, while a stronger yen weighed on Tokyo stocks after the Bank of Japan held policy steady as expected.
Investors stayed cautious before the outcome of the Federal Reserve's policy meeting later in the session as well as key U.S. jobs data on Friday, and against a backdrop of continuing tension in Ukraine.
MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.3 percent, erasing early gains but still on track for a monthly rise of over 1 percent.
Hong Kong's Hang Seng index slumped 1.2 percent as investors locked in gains from a late-afternoon surge on Tuesday that sent it up more than 1 percent in the final hour before the close.
Japan's Nikkei stock average also erased early gains and shed 0.1 percent, after the BOJ board decided unanimously to keep monetary policy steady as expected.
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The BOJ will release its latest economic projections later on Wednesday. Central bank policymakers will likely keep their inflation forecast for fiscal 2015 roughly unchanged from the current 1.9 percent, and estimate fiscal 2016 inflation close to 2 percent, sources have told Reuters.
Upbeat projections could bolster a growing market consensus that the BOJ will stand pat until around July or even longer to monitor how Japan's economy has weathered this month's hike to the national sales tax.
"The BOJ will stress that companies are smoothly passing on the costs of the sales tax hike to consumers, and that this is because of strong demand," said Masaaki Kanno, chief Japan economist at JPMorgan Securities.
FED MEETING
Later on Wednesday, Fed officials are expected to decide unanimously at the conclusion of their two-day meeting to continue tapering the central bank's massive bond-buying stimulus. Investors will focus on what their statement implies about the monetary policy outlook.
"For the most part we expect the statement to remain virtually unchanged. Having just shifted to qualitative guidance in March, the central bank is not planning to make any significant alterations in the near future," said Kathy Lien, managing director of FX strategy at BK Asset Management.
"Expectations for steady taper explain the dollar's muted reaction to positive and negative data," she said in a note to clients.
Just ahead of the Fed meeting, gross domestic product figures are expected to show the U.S. economy grew at a 1.2 percent annual rate in the first quarter, according to a Reuters survey of economists, as winter weather, weak exports and a slower pace of restocking by businesses took their toll.
Market participants continued to track developments in Ukraine, where hundreds of pro-Moscow separatists stormed government buildings in a provincial capitals on Tuesday and fired on police holed up in a regional headquarters.
The dollar shed about 0.3 percent against the yen to 102.37 yen, moving away from a three-week high of 102.79 yen hit on Tuesday.
Against a basket of currencies, the dollar edged down to 79.800.
EURO INFLATION
The euro remained under pressure after weaker-than-expected German inflation data raised speculation of more easing in Europe.
Against the greenback, the euro inched down to $1.3806 after losing 0.3 percent on Tuesday. Against its Japanese counterpart, the euro dropped 0.3 percent to 141.33 yen, after shedding 0.2 percent the previous day.
Preliminary German data showed annual inflation was a softer-than-expected 1.1 percent in April. European policymakers are concerned about the risk of deflation, with euro zone prices rising around 0.5 percent, well below the European Central Bank's medium-term target of just below 2 percent.
The latest price report due later on Wednesday is expected to show euro zone inflation picking up to a still-low 0.8 percent in April.
In commodities trading, spot gold slipped 0.2 percent to $1,293.86 an ounce. U.S. crude slipped 0.8 percent to $100.49 per barrel.
(Additional reporting by Leika Kihara in Tokyo and Natalie Thomas in Hong Kong; Editing by Chris Gallagher)