The dollar may strengthen against the yen on speculation the Federal Reserve will increase interest rates at a faster pace than the Bank of Japan. Traders expect the Fed to raise rates at least twice more this year after 14 straight increases since mid-2004 to 4.5 percent. BOJ Governor Toshihiko Fukui said today the bank hasn't decided when to lift rates from zero percent even after the end of its five-year deflation-fighting policy. ``We're still going to get Japanese rates at zero for some time yet,'' said Jeremy Stretch, a currency strategist at Rabobank Groep in London. ``The Fed continues to underpin the view that more rate hikes are highly probable, and yield premiums favor the dollar in the short term.'' The U.S. currency traded at 117.17 yen at 8:25 a.m. in London from 117.27 late yesterday in New York. It was also at $1.2092 per euro from $1.2095. The dollar was little changed after Fed Chairman Ben S. Bernanke said late yesterday that the U.S. trade deficit, which widened to a record $726 billion last year, needn't cause a ``precipitous decline'' in the currency's value. The U.S. currency initially declined after Bernanke said in a letter to Representative Brad Sherman that ``the possibility of a future disruptive correction of the U.S. trade deficit cannot be ruled out.'' Widening trade and current-account deficits sent the dollar lower against the euro and yen from 2002 to 2004. Record Shortfall A report March 14 showed a record $224.9 billion shortfall in the U.S. current account in the fourth quarter, meaning more dollars have to be converted to other currencies to pay for imports. The current account is the widest measure of trade. ``Talk about the trade deficit and risks to the U.S. dollar'' will help weaken the currency, said Harvinder Kalirai, head of research in Sydney at State Street Corp., the world's largest custodian of assets. ``The weakness in the dollar has coincided with Bernanke's letters that came out.'' In contrast with the Fed, the European Central Bank on March 2 raised its benchmark for the second time in three months by a quarter-point to 2.5 percent. The BOJ has kept rates near zero percent since 2001. Fukui told a parliamentary committee in Tokyo today that the central bank has no ``predetermined time frame'' for lifting rates. Japan's central bank on March 9 voted to reduce the amount of money it makes available to lenders, ending a policy of flooding the world's second-largest economy with money to combat deflation.