* 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.