* Dollar/yen slipped initially but later recovers
* Recent rise in US bond yields seen supporting dollar
By Masayuki Kitano
SINGAPORE, Sept 15 (Reuters) - The dollar inched higher versus the yen on Friday, regaining its footing after taking a hit when North Korea fired a missile over Japan into the Pacific Ocean.
The dollar last stood at 110.37 yen, up 0.1 percent on the day, a recovery from the intraday low of 109.55 yen set in early Asian trade on Friday when it came under pressure as the yen edged higher following reports of North Korea’s missile launch.
North Korea fired a missile on Friday that flew over Japan’s northern island of Hokkaido far out into the Pacific Ocean, South Korean and Japanese officials said, further ratcheting up tensions after Pyongyang’s recent test of a powerful nuclear bomb.
Japan is the world’s largest net creditor nation, and at times of uncertainty traders assume Japanese repatriation of overseas funds will eclipse foreign investors’ selling of Japanese assets.
As a result, the yen has continued to operate as a safe-haven currency despite Japan’s geographical proximity to North Korea.
While financial markets may stay jittery for now, the overall market reaction to North Korea’s missile launch will probably prove short-lived, market participants said.
Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo, said the market had expected North Korea might retaliate against the latest sanctions imposed on Pyongyang by the U.N. Security Council.
The dollar was unlikely to see any large fall against the yen, especially after the latest U.S. consumer inflation data bolstered expectations that the Fed could raise interest rates again by year-end, Murata added.
“U.S. rate rise expectations have risen compared to what was seen in early September, pushing up U.S. bond yields and I think that is supporting the dollar versus the yen,” he said.
The U.S. 10-year Treasury yield last stood at 2.181 percent , having risen 12 basis points so far this week.
Sterling took a breather, having rallied sharply on Thursday as the Bank of England warned it might raise interest rates for the first time in a decade in the “coming months”.
The pound held steady at $1.3403. On Thursday it had topped $1.34 for the first time in a year, and recorded a daily gain of 1.4 percent.
The euro slipped 0.1 percent to $1.1913, staying below a 2-1/2 year high of $1.2092 set last week. (Reporting by Masayuki Kitano; Editing by Muralikumar Anantharaman and Eric Meijer)