FOREX-Yen rises as Japan ponders joint intervention with US to counter yen weakness

By Joice Alves

TOKYO, Jan 16 (Reuters) - The yen rose against the dollar on Friday after Japan's Finance Minister Satsuki Katayama said Tokyo would not rule out any options to counter weakness in the yen, including coordinated intervention with the U.S.

The yen JPY= slid to a 1-1/2-year low earlier in the week. It was last up 0.3% to 158.13, but still set for a third consecutive week of declines against the greenback.

The dollar index, which measures the greenback against a basket of peers, was poised for a third consecutive weekly gain after positive U.S. economic data pushed out expectations for rate cuts by the Federal Reserve.

Katayama said a joint statement signed with the U.S. last September "was extremely significant and included language on intervention."

Markets in Japan are on edge before a pivotal week that will see fiscally dovish Prime Minister Sanae Takaichi dissolve parliament to set up a snap election while the central bank meets on policy. Some Bank of Japan policymakers see scope to raise interest rates sooner than markets expect to contend with the weak yen, sources told Reuters.

The Japanese currency has fallen this week on expectations that Takaichi may have greater leeway to introduce more stimulus pending the snap election expected early next month.

"Lower house dissolution reports are fuelling JPY depreciation pressure and we have further extended our long USD/JPY target, but potential intervention risk could cap the upside," said Shinichiro Kadota, Head of Japan FX and Rates Strategy at Barclays Tokyo.

Barclays said in a note that Japan's Liberal Democratic Party may be in for a tight race as the opposition strengthens its coordination and monetary policy could change depending not only on election results but also on FX reactions.

DOLLAR LIFTED BY DATA

The dollar index's =USD rally paused on Friday, with the currency edging 0.07% lower at 99.28, but still on track for a 0.15% advance this week.

The dollar rose on Thursday after data showed U.S. weekly jobless claims unexpectedly fell, likely reflecting challenges adjusting data for seasonal fluctuations.

Fed funds futures have pushed back expectations for the next rate cut to June on the back of improving employment data and as central bank policymakers expressed concern about inflation.

Elsewhere, the European Central Bank chief economist Philip Lane said the central bank will not debate any rate change in the near term if the economy stays on course, but new shocks, like a potential deviation by the Fed from its mandate, could upset the outlook.

The ECB has kept rates on hold since ending a rapid rate cut cycle in June and signalled last month that it was in no hurry to change policy again.

The euro EUR= was steady at $1.16120, set for a third consecutive weekly decline against the U.S. currency after falling on Thursday to its lowest level versus the dollar since early December.