The yen rose towards a recent 3-month high against the dollar on Thurdsay after China raised interest rates, but later fell sharply after Japan's top financial diplomat warned against a dollar adjustment as a means to correct global imbalances. Investors were also looking ahead to Congressional testimony by Federal Reserve Chairman Ben Bernanke for clues on whether U.S. interest rates are likely to rise further after a widely expected hike to 5 percent in May. Earlier in the week the dollar slumped to a seven-month low versus the euro and a three-month low against the yen after finance officials from the Group of Seven over the weekend called on China and other Asian countries to let their currencies rise to help fix global imbalances. On Thursday the yen gained almost 30 ticks against the dollar and euro after China raised interest rates by 27 basis points to 5.85 percent, the first increase since October 2004. But it erased gains as Hiroshi Watanabe, Japan's vice finance minister for international affairs, said the market was misinterpreting the G7 statement and said it was not calling for an adjustment in the dollar exchange rate. "Since Watanabe made comments that's when the reversal started and it seems to be breaking higher against the dollar," said Adarsh Sinha, currency strategist at Barclays Capital. "It's not surprising Watanabe came out as it's not in their interest to see the yen rising sharply," he added. The dollar was also up around 0.2 percent versus the yen at 114.98 Before Watanabe's comments, it had fallen to 114.23, close to Monday's three-month low of 114.22.