By Swati Pandey and Rebecca Howard
SYDNEY/WELLINGTON, July 29 (Reuters) - The Australian dollar sank to a two-week low against the yen on Friday after the Bank of Japan announced an expansion to its stimulus campaign that underwhelmed investors wagering on something more aggressive.
The Australian dollar slipped 1.4 percent to 77.88 yen AUDJPY=R , the lowest level since July 12. If Friday's losses are sustained, this will be the Aussie dollar's second straight weekly fall against the yen.
The BOJ doubled purchases of exchange-traded funds (ETF) at its two-day policy review that ended on Friday while maintaining its base money target at 80 trillion yen ($775 billion). the move disappointed investors who were expecting bolder measures if the central bank was serious about lifting the country out of decades of deflation.
The Aussie fared better elsewhere, rising 0.3 percent to $0.7525 against the U.S. greenback AUD=D4 .
The local focus will now shift to next week's monetary policy decision by the Reserve Bank of Australia. The market is pricing in a 60 percent chance 0#YIB: of a rate cut on Tuesday, while a majority of analysts in a Reuters poll forecasted an easing. AU/INT
"Our baseline scenario of a rate cut should at least knock AUD lower initially, towards $0.7400," said Sean Callow, a senior forex analyst at Westpac.
"Yet we can't be too bearish right now," he added, noting a price index of Australia's commodity exports was at highs last seen in May 2014.
The New Zealand dollar NZD=D4 rose 0.6 percent to $0.7116 Friday, even as it hit a three-week low on the yen at 74.35 NZDJPY= .
The Reserve Bank of New Zealand will also be watching the RBA closely next week since a decision not to cut would likely see the Aussie rise sharply on the kiwi, and relieve some pressure for a policy easing at home.
Domestic events next week include a dairy auction and figures on employment and labour costs, though data on unemployment have been delayed for two weeks. Zealand government bonds 0#NZTSY= gained, sending yields 1.5 basis points lower at the short end and 4 basis points lower at the long end.
Australian government bond futures fell amid a global bond sell-off when the BOJ resisted calls to buy more JGBs.
The three-year bond contract YTTc1 lost early gains to be flat at 98.58. The 10-year contract YTCc1 dipped 2 ticks to 98.1050, though cash yields earlier touched record lows at 1.84 percent.