* Dollar slips vs yen, Swiss franc as N.Korea tensions simmer
* Fed Governor Brainard notes lagging inflation
* Canadian dollar firm ahead of Bank of Canada meeting
By Lisa Twaronite and Masayuki Kitano
TOKYO/SINGAPORE, Sept 6 (Reuters) - The dollar edged down against the yen on Wednesday, pushed back toward a recent 4-1/2-month low by simmering tensions on the Korean peninsula and by comments from a Federal Reserve official about subdued U.S. inflation.
The dollar fell 0.1 percent to 108.72 yen and touched a low near 108.50 yen in Asian trading. That brought it back close to its Aug. 29 nadir of 108.265 yen, its weakest since mid-April.
The Swiss franc rose slightly on the day to 0.9549 franc per dollar, with the franc having gained about 1 percent so far this week.
A top North Korean diplomat on Tuesday warned that his country was ready to send “more gift packages” to the United States as world powers struggled for a response to Pyongyang’s latest nuclear weapons test.
The yen and the Swiss franc have both risen this week, as geopolitical tensions flared anew after North Korea conducted a powerful nuclear test on Sunday, dampening investors’ appetite for riskier assets.
The yen almost always gains when investors try to reduce exposure to risk because the currency is often used as a funding source to buy riskier, higher-yielding assets.
Japan is also the world’s largest net creditor nation, and at times of uncertainty traders assume Japanese repatriation from foreign countries will eclipse foreign investors’ selling of Japanese assets.
As a result, the yen has continued to behave as a safe-haven currency despite Japan’s proximity to North Korea.
“The market still wants to buy yen every time there’s a North Korea story, so we’re stuck in this pattern,” said Bart Wakabayashi, Tokyo Branch Manager of State Street.
The market had a muted reaction to Japanese economic data released earlier on Wednesday, which raised doubts about the Bank of Japan’s assertions that a tightening labour market will lead to higher wages and an increase in consumption, which in turn will boost economic activity and inflation.
Japanese workers’ wages fell in July from a year earlier on a drop in summer bonus payments, casting some doubt on the sustainability of a recent improvement in consumer spending. Labour ministry data showed wages fell in both nominal and inflation-adjusted real terms.
“If we don’t get the good kind of inflation, which is wage-induced, it’s just more pain for everybody - and if the yen is stronger, it’s not going to help,” Wakabayashi said.
Fears of lagging inflation plague other regions as well. Adding to pressure on the dollar, Federal Reserve Governor Lael Brainard said on Tuesday that inflation was “well short” of target, so the Fed should be cautious about raising U.S. interest rates.
Analysts said the comments cast more doubt over the likelihood of another rate hike this year. Brainard, a permanent voting member on the Fed’s monetary policy committee, has in the past convinced colleagues to delay tightening.
“We all know she’s really dovish...but her comments were pretty explicit regarding inflation. She didn’t mince her words,” said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, referring to Brainard’s remarks.
Traders might try to sell the dollar if it bounces against the yen, given the ongoing focus on North Korean risks, he added.
The euro was flat on the day at $1.1910, remaining below a 2-1/2-year high of $1.2070 set last week as investors looked to the European Central Bank’s policy decision on Thursday.
The dollar index, which tracks the greenback against a basket of six major rivals, was up 0.1 percent at 92.314.
The Canadian dollar last traded at C$1.2395 per U.S. dollar, having set a two-year high of C$1.2336 on Tuesday ahead of a Bank of Canada interest rate decision on Wednesday.
The Canadian dollar has been pushing higher after data last week showed that Canada’s economy recorded its strongest growth in nearly six years in the second quarter, stoking speculation the Bank of Canada could raise interest rates as early as this week.
In a Reuters poll published on Friday, 24 of 33 economists surveyed said Canada’s central bank was most likely to raise interest rates in October.
Still, six forecast that rates would rise on Wednesday to 1.0 percent, with several changing their view after the strong second-quarter GDP data. (Reporting by Lisa Twaronite in Tokyo and Masayuki Kitano in Singapore; Editing by Shri Navaratnam and Jacqueline Wong)
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