NEW YORK (MktNews) - The dollar was trading firm against the yen in morning trade Wednesday while the euro was holding modest gains vs the dollar as traders reassessed the interest rate outlook in Japan. Dollar-yen was trading around Y116.15 at 8:50 a.m. EST, having risen sharply from the Y114.80 level seen in late New York trading Tuesday. Traders said recent dollar buying by early New York names combined with dollar purchases from a Japanese bank to boost the U.S. unit to its best levels of the week thus far. Light offers from Japanese banks were absorbed around the Y116.20 area in recent trade and additional selling interest is said to lie near Y116.50. Traders say expectations are rising that the Bank of Japan will take steps to boost the country's ailing economy when its monetary policy committee meets Friday, either by trimming already low interest rates or by providing additional monetary stimulus. Those expectations, coupled with comments from Bank of Japan governor Hayami, taken from the minutes of the BOJ's February 2 board meeting, that yen weakness around current levels was not a worry, added fuel to the dollar's rise. In addition, early morning comments from U.S. Treasury Secretary Paul O'Neill that he believes in a strong dollar policy were also reassuring to traders. Overnight, dollar yen was boosted by strong buying by one U.S. money-center bank, traders in London said, mentioning that bank had been a conspicuous dollar buyer starting at levels around Y115.00, absorbing modest offers from Japanese names as the U.S. unit reached above Y116.00. Euro-dollar meantime was trading around $0.9335 at 8:50 a.m., up slightly in light morning trade but still within well worn ranges of recent days. Offers were absorbed in the $0.9340 area as the euro reached its best levels of the session so far, traders said, but additional selling interest lies ahead at $0.9350 and $0.9380/90. Overnight, news that Germany's manufacturing orders for December rose by 2.7% month on month, beating market expectations of a modest decline, added strength to the euro, traders said. Talk of modest buying of the single currency by a European National central bank, said to be for commercial purposes, also helped underpin the euro, traders said. News that U.S. fourth quarter productivity grew at 2.4% annual rate, down from the 3.0% pace of the previous quarter, had limited market impact when the data was released at 8:30 a.m. EST, traders said.