FOREX-Yen on guard ahead of BOJ decision; dollar set for weekly loss

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Yen steady ahead of expected BOJ hike

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Dollar eyes worst week since November

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Trump wants Federal Reserve to cut rates

By Rae Wee

SINGAPORE, Jan 24 (Reuters) - The yen was front and centre for currency markets on Friday ahead of a Bank of Japan (BOJ) policy decision where it is all but certain to raise interest rates, while the dollar was headed for its worst week in two months.

The BOJ concludes its two-day policy meeting later in the day and markets have fully priced in a 25-basis-point hike , with comments from BOJ officials in recent times also hinting at such a move.

Ahead of the decision, the yen was little changed at 156.11 per dollar, languishing near a one-week low hit in the previous session.

The Japanese currency surged last week on heightened expectations for a rate hike but has since given up some of those gains as traders also await further clarity on the BOJ's policy outlook.

"The BOJ is likely to proceed with a rate hike," said Vincent Chung, co-portfolio manager for T. Rowe Price's diversified income bond strategy.

"We expect this initial rate increase in 2025 to be followed by a series of gradual hikes, potentially bringing the policy rate to 1% by the end of the year. The policy rate could even exceed 1%, as this is closer to the lower end of the BOJ's neutral rate range."

Analysts said it would take a hawkish hike from the BOJ to prevent the yen from falling anew after Friday's decision, with officials likely needing to signal further rate increases ahead.

The euro rose 0.07% to 162.66 yen in the early Asian session , while sterling ticked up 0.08% to 192.80 yen .

Underscoring expectations for a rise in borrowing costs on Friday, data showed Japan's core consumer prices rose 3.0% in December from a year earlier to mark the fastest annual pace in 16 months.

DOLLAR BLIP

Elsewhere, the dollar was headed for its worst weekly fall in two months, after U.S. President Donald Trump's widely expected tariff announcements did not materialise following his inauguration, unlike what he had threatened during his campaign.

The greenback was set to lose 1.2% against a basket of currencies, its steepest decline since November. The dollar index was last 0.06% lower at 108.08 on Friday.

The euro, meanwhile, rose 0.03% to $1.0419 and was headed for a 1.4% weekly gain, which would mark its best performance since November.

Sterling last bought $1.2353 and was similarly poised for a rise of 1.5% for the week, snapping three straight weeks of losses.

Also adding to headwinds for the dollar were comments from Trump demanding that the Federal Reserve cut interest rates, arguing he understands monetary policy better than those charged with setting it.

"The Trump comments ... are a reminder that we're just going to have this constant source of volatility coming from off-the-cuff comments, and of course, it does on paper challenge a little bit of that Fed independence," said Rodrigo Catril, senior FX strategist at National Australia Bank.

Trump's remarks come just days before the Fed's first policy meeting to be held during his administration, with very broad expectations officials will leave rates unchanged.

Elsewhere, the Australian dollar dipped 0.05% to $0.6282, though it was on track for the best week since September with a rise of 1.5%.

The New Zealand dollar eased 0.04% to $0.5674, but was likewise headed for a 1.6% weekly gain, also its best since September.

(Reporting by Rae Wee; Editing by Jacqueline Wong)