* Yen gains slightly after BOJ action but then retreats
* BOJ expands funding op size but doesn't extend duration
* No move to extend duration disappoints some
By Charlotte Cooper
TOKYO, March 17 (Reuters) - The yen slipped on Wednesday, reversing direction after players disappointed by only a modest easing step by the Bank of Japan tried to drive it higher and ran into a wall of selling.
After pressure from the government for action to beat deflation, the BOJ decided in a 5-2 vote to double the size of a fixed rate fund supply tool adopted in December to 20 trillion yen ($222 billion) but kept the loan duration at three months, instead of six months as some expected.
The yen initially rose after the move as the three-month duration decision disappointed some who had looked for more and prompted yen buying.
But strong dollar bids near 90.00 yen saw yen buyers quickly sell it back, while traders reported dollar buying interest near the day's lows from Japanese life insurers and non-Japanese players.
"The market immediate reaction was 'sell on the fact' in the dollar/yen but the pair quickly rebounded as the market sentiment right now is not really for the yen to firm sharply, " said Jun Kato, senior chief analyst at Shinkin Central Bank Research institute.
The dollar rose 0.4 percent to 90.64 yen after dipping to the day's low of 90.02 in the wake of the decision.
It also had technical support near 90.00, stemming from the tenkan line in an Ichimoku cloud formation and from the 100-day and 30-day moving averages which come in at about 90.12 and 90.00 respectively.
The Australian dollar also gained 0.2 percent to 83.21 yen, while the New Zealand dollar climed 0.3 percent.
Analysts said although there had been some disappointment over the BOJ's decision not to extend the operation to six months, broadly it was in line with overall expectations.
The outlook for dollar/yen now depends on U.S. rate rise expectations, and appetite to invest in risker assets and currencies, although yen inflows from the fiscal year end repatriation remain a risk.
"Ahead of the fiscal year end, markets are still worried about possible repatriation by Japanese funds and so the dollar/yen remains heavy," said Masafumi Yamamoto, chief FX strategist Japan at Barclays Capital.
But short-term dollar rates were all edging up, with three-month dollar Libor now above yen Libor, and that was likely to set a floor for the dollar against the yen, he said.
FED PLEDGE
The euro rose 0.6 percent on the day to 125.00 yen after falling to 124.10 yen.
It was helped by a repeated pledge by the Federal Reserve on Tuesday to keep U.S. interest rates low for an extended period and by Standard and Poors' removing Greece from negative ratings watch.
The euro edged up 0.2 percent to $1.3787, having jumped nearly 0.7 percent on Tuesday.
Dollar bulls were disappointed that nobody joined Kansas City Fed president, Thomas Hoenig, in dissenting from the Fed's vow to keep rates low for an "extended period", after a batch of robust data raised hopes of a more durable recovery there.
"The unchanged language will likely weigh on lingering expectations for rate hikes in the second half of 2010, as most see the language as a commitment to keep the fed funds rate unchanged for roughly six months," JP Morgan said in a note.
"As a result, it should add to downward pressure on the U.S. dollar over time." (Additional reporting by Satomi Noguchi and Kaori Kaneko in Tokyo, and Anirban Nag in Sydney; Editing by Joseph Radford)