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* Dollar inches higher ahead of central bank speeches
* Yellen eyed for signs on balance sheet reduction
* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, Aug 25 (Reuters) - The dollar gained against the yen but inched down against the euro on Friday, as traders cleared the decks for speeches by Federal Reserve chief Janet Yellen and her euro zone counterpart Mario Draghi at a central bank meeting in Jackson Hole, Wyoming.
A debate in the U.S. Congress over raising the government's debt ceiling has begun to loom over the U.S. currency, with lawmakers expected to have just two weeks to agree a deal when they return in September.
But with trade thinned by the last weeks of the European holiday season, and a bank holiday weekend in the world's main currency trading hub London, expectations of more signs from Yellen on plans to reduce the Fed's balance sheet had steadied the greenback overnight.
It was on course to end the week 0.4 percent stronger against the yen, having slipped to as low as 108.60 yen on tensions stemming from the Korean Peninsula.
"Given the vibes that we have been getting from the Fed I think it is becoming clear that they are intent on pursuing this balance sheet reduction next month," said Alvin Tan, a strategist with Societe Generale in London.
"The market is effectively expecting an announcement in September so (if Yellen promises one) it will not be a surprise. (But) the kneejerk could help push U.S. bond yields higher and obviously help the dollar."
Expectations that Draghi and the European Central Bank will push forward with their own tightening of policy this year, however, have driven the single currency close to 14 percent higher this year and many banks predict more is to come.
By 1057, the euro had gained around 0.17 percent to $1.1784EUR=EBS . The dollar was up 0.1 percent on the day at 109.69 yenJPY= .
Price data from Japan highlighted what could be a major topic of discussion at the central bankers' gathering: why are inflationary pressures remaining so stubbornly weak despite a seemingly synchronised global economic recovery? urn:newsml:reuters.com:*:nL4N1LA588
Japan's core consumer prices inched up for a seventh straight month in July from a year earlier, but the gain was a tepid 0.5 percent and driven largely by higher fuel bills. The yen showed little reaction. urn:newsml:reuters.com:*:nL4N1LA16E
The ECB's job has been made harder by a stronger euro and traders are still wary of any comment on the currency's strength from Draghi.
The dollar index against a basket of six major currencies was also up 0.1 percent at 93.382 .DXY after nudging up 0.15 percent overnight on the back of a rise in U.S. Treasury yields.
"If anything, Draghi may deliver a rather dovish message that still leaves the door open to tapering at the end of the year while carefully managing the euro lower," said Oanda analyst Craig Erlam.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Writing by Patrick Graham; Editing by Jeremy Gaunt and David Holmes)
Keywords: GLOBAL FOREX/
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