The dollar edged up against the yen on Thursday after an upbeat reading for U.S. manufacturing that gave credence to the widely held view that the Federal Reserve will raise interest rates twice more before mid-year. Amid quiet trade, the U.S. currency also drew support as traders grew nervous about pushing the yen higher ahead of data that is expected to show a rise in Japanese consumer prices, paving the way for the Bank of Japan to end its ultra-loose monetary policy soon.
"The market is just waiting for the consumer price index," said Fumihiko Kawano, forex manager at Nomura Securities. "If the figures are strong, market players are likely to buy the yen tentatively." The dollar hit one-month lows against the yen this week partly on expectations that the BOJ could stop flooding the banking system with excess cash as early as next week amid signs prices in Japan are rising after nearly a decade of deflation.
By 0555 GMT, the dollar had crawled up to 116.30 yen from around 116.10 in late U.S. trading on Wednesday. Earlier that day, it marked a one-month low of 115.45 yen during Tokyo time on electronic trading platform EBS. The euro was flat at $1.1925. Its failure to break above the peak of its recent range at $1.1975 was seen contributing to the dollar's recovery in the previous session. The European currency rose slightly to 138.65 yen .
The BOJ's easing policy is widely expected to come to an end in April, though some analysts see an exit as early as next week's BOJ board meeting. Rates in Japan are expected to rise from near zero before the year is out. The BOJ has pledged to keep the policy in place until the core consumer price index is rising steadily. The median forecast in a Reuters poll is for a rise of 0.4 percent in January from a year earlier. That would mean a recovery in prices is gaining momentum after 0.1 percent rises in December and November. The figures will be released at 8:30 a.m. on Friday.