* Dollar set for second weekly gain on trot
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Ritvik Carvalho
LONDON, June 16 (Reuters) - The yen slumped to two-week lows against the dollar on Friday after the Bank of Japan kept interest rates steady and signalled it was in no hurry to follow the Federal Reserve's example in tightening its ultra-loose monetary policy.
Governor Haruhiko Kuroda said there was "some distance" to achieving the BoJ's inflation target of 2 percent, and it was "inappropriate" to say how the Bank would exit its massive stimulus programme.
That ran contrary to market speculation in the past month that the BoJ could be considering its own plan for eventually withdrawing emergency stimulus for the economy. This dragged the yen nearly half a percent lower to 111.415 per dollar by afternoon trade in London.
"The theme continues to be the potential for further yen weakness because they (the BoJ) are still grappling with the deflationary mindset of the Japanese consumer," said Martin Arnold, FX strategist at ETF Securities in London.
"I think safe-haven trade is the only light at the end of the tunnel - there has to be some sort of significant (risk) event to light a spark under the yen."
The yen's moves came as the dollar edged lower from two-week highs hit since the Federal Reserve raised interest rates on Wednesday and stuck to its guns on the likelihood of further moves this year.
The index that measures the greenback's broader strength was 0.1 percent lower on the day at 97.340, but still set for its second weekly gain on the trot.
A round of poor economic data has undermined market expectations for the scale of future U.S. rate rises and is likely to continue to weigh on the greenback.
"I hear nothing from the Fed that seeks to dissuade the market from thinking that we're heading towards an extremely low peak in rates. And I think that's what's going to cap the dollar now," said Kit Juckes, currency strategist with Societe Generale in London.
"The more interesting question is, will the communication be that there's another one (hike) coming in the fall."
The euro was up 0.3 percent at $1.1174, but still more than a cent below a seven-month peak of $1.1296 hit before the Fed's decision on Wednesday.
Thursday's run of U.S. economic data gave dollar bulls some reason for cheer. The Labor Department said initial claims for state unemployment benefits dropped 8,000 to a seasonally adjusted 237,000 for the week ended June 10, lower than the 242,000 that economists had forecast.
"The USD appears to be driven by some reassessment of this week’s FOMC (Federal Open Markets Committee) decision as well some upbeat U.S. manufacturing survey data on Thursday," Credit Agricole strategists wrote in a note. (Reporting by Ritvik Carvalho; Additional reporting by Tokyo Markets team; Editing by Mark Heinrich)