By Kevin Buckland
TOKYO, Jan 27 (Reuters) - The yen rose against the dollar on Friday as heated Tokyo inflation readings spurred bets that a hawkish pivot from the Bank of Japan (BOJ) was in the offing.
However, the U.S. dollar pulled away from near a nine-month low to the euro and a seven-month trough to sterling as traders braced for a critical week when the central banks responsible for all three currencies will meet.
The dollar lost 0.17% to 129.96 yen in Asian trading after data showed consumer price inflation in Japan's capital accelerated to a nearly 42-year peak this month, piling pressure on the BOJ to step away from stimulus.
However, that was well off the day's earlier low of 129.50, and much further from the 7-1/2-month trough of 127.215 reached last week, when expectation built for the central bank to tweak policy. After BOJ officials voted unanimously on Jan. 18 to keep stimulus settings unchanged, the currency pair bounced as high as 131.58.
"Market expectations for changes at any time (by the BOJ), including the next meeting in March, will remain high, and that will keep the yen bid," said Shinichiro Kadota, a strategist at Barclays in Tokyo, who saw a possibility of the dollar-yen pair breaking below 125.
"If there are any bouts of yen weakness, I think the topside will continue to be capped by those expectations," Kadota said.
For the week, the dollar is up about 0.28% against the yen, after swinging between gains and losses.
The euro is headed for a 0.17% rise against the dollar since last Friday, in its third straight winning week. That is despite easing 0.17% to $1.08715 on the day, pulling back from the overnight high of $1.09295, a level last seen in April.
Traders broadly expect the Fed to increase interest rates by 25 basis points (bps) on Wednesday, a step down from a 50 bps increase in December. Meanwhile, the ECB has all but committed to raising its key rate by half a percentage point the following day.
The dollar index - which measures the currency against six major peers, including the euro, yen and British pound - gained 0.19% to 101.94, though that still left it on course for a marginal decline this week.
Sterling eased 0.23% to $1.23825, flipping to a slight loss for the week.
Still, the British currency remains near a seven-month peak of $1.24475 reached on Monday, even as the Bank of England faces a challenge of controlling inflation without damaging an economy already in recession. The BoE will make its next policy decision on Thursday, and is seen hiking by a half point.
The risk-sensitive Aussie dollar was flat at $0.7114, not far from Thursday's seven-month high of $0.71425. Australian inflation data earlier in the week showed consumer prices climbing at the fastest pace in 33 years, fostering expectations that more Reserve Bank of Australia interest rate rises are due.
For the week, the Aussie is up 2.09%, on track for its biggest weekly advance since early November.
(Reporting by Kevin Buckland; Editing by Bradley Perrett)
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2023-01-27 06:24:00Z
CBMiR2h0dHBzOi8vZmluYW5jZS55YWhvby5jb20vbmV3cy9mb3JleC15ZW4tZ2FpbnMtYm9qLXBpdm90LTA2MjQ1NTc5OS5odG1s0gFPaHR0cHM6Ly9maW5hbmNlLnlhaG9vLmNvbS9hbXBodG1sL25ld3MvZm9yZXgteWVuLWdhaW5zLWJvai1waXZvdC0wNjI0NTU3OTkuaHRtbA
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