* US Treasury informed banks that it may intervene in yen,
source says
* Yen extends gains from prior session
* BOJ leaves rates unchanged at 1%, delivers hawkish signal
* Dollar index set for biggest weekly fall since April
(Updates to U.S. morning)
By Saqib Iqbal Ahmed
NEW YORK, July 31 (Reuters) - The dollar eased against the
Japanese yen on Friday, with traders alert for a second round of
intervention after Japanese authorities stepped in to prop up
their currency a day earlier.
The dollar slipped as much as 0.6% to 158.535 yen, before
recovering to trade down 0.1% at 159.31 yen, a day after sinking
2.4%.
The U.S. Treasury has informed a number of banks that it may
intervene in the yen market on Friday and that they should
"stand ready for future action," a source familiar with the
matter told Reuters.
Tokyo was also receiving support from the U.S. that "goes
beyond psychological support", Japan's top foreign exchange
diplomat said on Friday.
Eric Theoret, FX strategist at Scotiabank, said it was
unclear if Friday's modest rise in the yen was a result of
actual intervention, or traders reacting to the possibility of
one in the near future.
"In thin liquidity, intervention can have a much greater
impact. Even the mere kind of possibility that this could happen
is definitely something that markets are going to respond to in
a very sensitive way," Theoret said.
The Bank of Japan earlier in the day kept short-term
interest rates steady at 1% in a widely expected move.
The BOJ, which hiked rates to a 31-year high last month,
warned for the first time that underlying inflation could exceed
its target, signalling further rate hikes from as soon as
September.
BOJ Governor Kazuo Ueda said many of the board members'
inflation forecasts are fairly high and they see risks skewed to
the upside.
"We'd characterize that as a hawkish hold, in the sense that
they're very much open to tightening rates, I think, at the next
meeting in September," Scotiabank's Theoret said.
Japan's slow pace of rate hikes has been blamed for pushing
the yen to 40-year lows below 163 per dollar recently. Most
analysts polled by Reuters expect the BOJ to raise rates again
to 1.25% by year-end.
Thursday's moves resulted in spot yen trading volumes
surging to their highest in 10 years on the EBS trading platform
and futures trading volumes hitting their highest on record, the
CME Group said.
In a rare coordinated move, South Korea also conducted
dollar-selling intervention on Thursday to support its currency,
a market source told Reuters.
The won, which rose to a nine-month high on Thursday,
was down about 1% at 1,438.71 against the dollar.
WAVE OF INTEREST-RATE DECISIONS THIS WEEK
The BOJ meeting followed the U.S. Federal Reserve's decision
on Wednesday to leave interest rates unchanged, which bruised
the dollar as traders questioned whether the Fed's new chair was
serious about containing inflation.
That has added to the dollar's pain with the greenback
heading for its biggest weekly fall since early April and a
monthly loss of about 1% against a basket of peers.
On Friday, it was up 0.2% at 100.3, after falling around
1.5% in the last three sessions.
In Europe, the euro inched 0.4% lower to $1.1482.
Sterling was down 0.3% against the dollar.
The Bank of England also kept its main lending rate steady
in a widely expected decision on Thursday.
In cryptocurrencies, bitcoin slipped 3% to $62,579.