* Yen hands back half its intervention boost

* Weekly drop is largest since previous intervention faded

* Dollar balances oil gains with retreating rate hike bets

SINGAPORE, Aug 14 (Reuters) - The yen headed for its biggest

weekly loss in about a month on Friday as the impact of U.S. and

Japanese intervention faded, leaving traders to wager that

either rate hikes or another round of official buying would be

needed to stem the decline.

The currency has surrendered roughly half the gains sparked

by intervention in late July and early August, falling about

0.9% this week to 159.29 per dollar. It was trading near

164 per dollar before July's intervention and traders see the

160 level as a potential trigger for fresh official action.

The yen's retreat mirrors a similar selloff in May, when it

was also backsliding after a round of official buying.

The Japanese currency rose slightly in Friday trade after

Reuters reported the Bank of Japan is set to raise rates as soon

as September and is considering more aggressive hikes to follow,

citing three people familiar with policymakers' thinking.

It has been falling, however, for years, and is not far from

four-decade lows, thanks to a combination of perennially low

interest rates and newer confidence concerns around government

spending.

The broader currency market has been fairly steady this

week, with support for the dollar from higher oil prices and

Middle East tension offset by benign U.S. jobs and inflation

reports that reduced expectations for U.S. interest rate hikes.

Thursday figures showing unchanged U.S. producer prices in

July further supported dialing back bets on a September hike,

now seen as a roughly 35% chance.

The euro edged 0.1% lower to $1.1541 this week while

sterling was flat at $1.3498. A surprisingly low

inflation expectations reading knocked the New Zealand dollar

on Thursday, but it bounced back as the swap market stuck

with an 85% chance of a rate hike in September.

The Australian dollar hovered at $0.7065.

THE ONUS IS ON BOJ

Since exiting a massive, decade-long stimulus in 2024, the

BOJ has raised interest rates at a pace of roughly twice a year,

a tempo it is considering picking up, according to sources

familiar with the bank's thinking, Reuters reported on Friday.

Japan may also conduct more joint yen intervention "at any

time", Tokyo's former top currency diplomat Mitsuhiro Furusawa

told Reuters in an interview.

Markets have already bet on the Bank of Japan raising rates

further and sooner than previously expected after U.S. Treasury

Secretary Scott Bessent said Japan should reinforce intervention

with policies and fundamentals that underpin the yen.

"It's not much of a surprise that the yen has retraced,"

said OCBC strategist Sim Moh Siong.

"Because for the intervention to change the yen trend, we

need to see a more hawkish BOJ stance, which the market is

trying to price in, but at the same time, we need validation,"

he said. "The onus is on BOJ to step up."

Markets currently see a 76% chance of a BOJ hike in

September, according to Tokyo Tanshi data, a dramatic increase

compared with 24% on July 30, but one which also opens the door

to yen falls if investors are disappointed.

China's yuan stood near Thursday's 3-1/2-year high of

6.74 per dollar.

South Korea's won, which was also supported by

official intervention as authorities sold dollars in concert

with Japan last month, has held steadier than the yen though it

was set to notch a modest loss of 0.6% against the dollar this

week.

"Interventions, to me, even if they're coordinated, even if

they are quite powerful, are at best temporary, and at worst an

invitation for the market to challenge them," said Omar Slim,

co-head of Asia public fixed income at MetLife Investment

Management.