November 20, 2014 / 2:12 PM / 3 years ago

FOREX-Dollar near seven-year highs against yen

(Recasts, adds data, changes byline and dateline from previous LONDON)

By Karen Brettell

NEW YORK, Nov 20 (Reuters) - The U.S. dollar was near a seven-year high against the yen on Thursday as investors bet that the Federal Reserve was on course to begin raising interest rates next year while the Japanese central bank will maintain highly stimulative policies to boost growth in the country.

The dollar rose as high as 118.96 yen in overnight trading, the highest level since August 2007, and last traded at 118.04 yen.

The greenback also posted brief gains on data that showed that the core Consumer Price Index, which strips out food and energy prices, rose 0.2 percent last month, following a 0.1 percent increase in September.

“At a time when everyone is fretting about disinflation risk, and the Fed suggested they were getting a bit worried about it in their minutes yesterday, to get a 0.2 percent on the core is reassuring,” said Richard Franulovich, a senior currency strategist at Westpac Securities in New York.

Minutes of the U.S. central bank’s Oct. 28-29 meeting released on Wednesday indicated a vigorous debate among policymakers over how much weight to give to signs that inflation expectations were slipping, potentially undermining their effort to bring the pace of price increases back up to their target.

Other data on Thursday showed that the number of Americans filing new claims for unemployment benefits fell less than expected last week, but continued to point to strengthening labor market conditions.

With the divergence of a strengthening U.S. economy and continued weakness in Europe and Japan many traders expect the dollar to continue to gain against the euro and yen, with dollar gains to 120 yen the next focus.

“From the start of next week I think that there’ll be a concerted focus on 120 yen,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London, adding that with no technical barriers in the way, the dollar could hit that level as soon as the middle of next week.

The euro slipped after purchasing managers’ surveys from the euro zone showed business growth was weaker than forecasters expected this month, underpinning expectations that monetary conditions will be eased further in the 18-nation bloc.

The euro fell to $1.2505 after the euro zone data and was last trading at $1.2544. (Additional reporting by Jemima Kelly in London; Editing by Chizu Nomiyama)

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