* Yen surrenders some gains from coordinated intervention
* BOJ leaves rates unchanged at 1%, delivers hawkish signal
* Dollar index set for biggest weekly fall since April
(Updates prices throughout, adds analyst comments)
By Shashwat Chauhan
July 31 (Reuters) - The yen steadied after rising briefly
earlier on Friday, with traders remaining alert for a second
round of intervention after Japanese authorities stepped in to
prop up their currency a day earlier.
The yen traded up as much as 0.6% at 158.535 per
dollar in London morning trading but quickly gave up its gains.
It was last down 0.46% at 160.21, having weakened to as low
as 160.90 against the dollar after the BOJ earlier in the day
kept short-term interest rates steady at 1% in a widely expected
move.
Thursday's yen-buying and dollar-selling intervention set
the Japanese currency for its biggest weekly rise since February
and a monthly jump of more than 1.5%. The move has pulled it
away from four-decade lows but failed to give it a sustained
boost.
"Previous interventions have provided temporary relief, but
the yen has often resumed its decline once the immediate support
faded," said Harun Thilak, head of trading for North America at
Validus Risk Management.
"This highlights the limits of direct intervention when
broader macroeconomic and interest-rate fundamentals remain
unfavourable."
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.
Japan's slow pace of rate hikes has been blamed for pushing
the yen to 40-year lows below 163 per dollar recently, and most
analysts polled by Reuters expect the BOJ to raise rates again
to 1.25% by year-end.
Tokyo was also receiving support from the U.S. that "goes
beyond psychological support", Japan's top foreign exchange
diplomat said on Friday.
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 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 rose to a nine-month high before paring some
gains, last down 1.36% to stand around 1442.49 against the
dollar.
WAVE OF INTEREST-RATE DECISIONS THIS WEEK
The BOJ meeting followed the U.S. Federal Reserve's decision
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 nearly 1% against a basket of peers.
On Friday, it was a touch higher after falling around 1.5%
in the last three sessions.
"The market is a bit lost in translation in the sense that
forward guidance has been literally abandoned by all the major
central banks and now the market is moving quite fast when it
comes to the monetary policy expectations," said Mabrouk
Chetouane, head of global market strategy at Natixis Investment
Managers in Paris.
In Europe, the euro inched 0.4% lower to $1.1483
after hitting a six-week high in the last session.
Sterling was down 0.4% against the dollar after
nearing a two-week high on Thursday.
The Bank of England also kept its main lending rate steady
in a widely-expected decision on Thursday.
Norway's crown was on track to notch the biggest
monthly gains against the U.S. dollar among major currencies, up
nearly 4% and likely benefiting from higher oil prices due to
Norway's net exporter status.
The Aussie and Kiwi dollar were little
changed at $0.7018 and $0.5861, respectively.
In cryptocurrencies, bitcoin slipped 1.5% to
$63,739.6, on pace to snap a four-week winning streak.
(Reporting by Jiaxing Li in Hong Kong, Ankur Banerjee in
Singapore and Shashwat Chauhan in Bengaluru; Editing by Yoruk
Bahceli and Arun Koyyur)