* Fed expected to stand pat at 2-day meeting through Wednesday
* Bank of Japan expected to take easing steps later this week
* Investors question impact of Japan govt stimulus package
TOKYO, July 26 (Reuters) - The dollar slipped ahead of the U.S. Federal Reserve's two-day policy meeting that begins later on Tuesday, while the yen gained despite expectations that the Bank of Japan will ease later this week as investors grow increasingly sceptical about the impact of further stimulus.
The dollar shed 0.9 percent against the yen to 104.84 JPY= , while the euro skidded 1 percent to 115.19 yen EURJPY= .
Tokyo is compiling a spending package worth about 20 trillion yen ($189 billion), government sources told Reuters last week, though actual public spending will be far less than the headline number suggests. Japanese government's fiscal stimulus appears to be 'buy the rumour, sell the fact,'" said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
"It might not be enough to boost Japanese growth, at least compared to the strong expectations at first," he said.
A Nikkei report on Tuesday said Japan was likely to inject 6 trillion yen in direct fiscal outlays into the economy over the next few years. the yen, what matters most in our opinion is the 'mamizu' or real water content of the fiscal package - more so than the headline total which is easily inflated," said Ray Attrill, global co-head of FX strategy at National Australia Bank. "The bigger this is, the more stock market supportive it will be and negative for the yen."
Japanese government projections on Tuesday underscored the pressure on policymakers to revive the economy. Japan will not meet its goal of reaching nominal gross domestic product of 600 trillion yen ($5.7 trillion) in fiscal 2020, and may not achieve it even by fiscal 2024 if growth stays sluggish, the government's projections showed on Tuesday. this week, most economists surveyed by Reuters expect the BOJ to take some form of easing steps at its two-day meeting that ends on Friday. some fear the central bank risks triggering a market backlash if it fails to meet investors' easing expectations. was also subdued by news that 19 people were killed and dozens injured in a knife attack allegedly by a former employee at a facility for the disabled outside of Tokyo. Such mass killings are extremely rare in Japan. initial headlines put pressure on the dollar/yen, because there was no way to know at first that it was not a terrorist attack, similar to those that have taken place in the U.S. and Europe recently," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
Meanwhile, the U.S. central bank is widely expected to stand pat on policy at its meeting that ends on Wednesday, but investors were bracing for any possible signals from the Fed about a tightening later this year.
Fed fund futures on Monday indicated that the market sees nearly no chance of a rate hike this week, but the chances of a December hike rose to 56 percent, up from 48 percent on Friday. dollar index, which tracks the greenback against a basket of six major rivals, edged down 0.1 percent to 97.173 .DXY , below the previous session's high of 97.569, its loftiest peak since March.
The Australian dollar rose 0.2 percent to $0.7482 AUD=D4 as investors awaited inflation data on Wednesday which many believe will send a signal on whether interest rates will be cut as early as next month.
Underlying inflation is expected to fall to a record low of 1.4 percent, a Reuters poll showed, which is seen prompting the Reserve Bank of Australia to trim its cash rate. pound slipped 0.2 percent to $1.3118 GBP= , pressured after a survey painted a subdued picture of Britain's manufacturing sector on Monday. to that pressure was a report in the Financial Times that Bank of England policymaker Martin Weale had dropped his opposition to an easing and now favoured immediate stimulus.
($1 = 105.5800 yen)