The yen dipped on Friday after a smaller-than-expected rise in consumer prices reinforced expectations that Japanese interest rates will rise only slowly, keeping it on the back foot against higher-yielding currencies.
But currency moves were stifled as traders awaited a speech by Federal Reserve Chairman Ben Bernanke for possible clues about where US rates are headed. Japan's consumer price index climbed 0.2 percent in July from a year earlier, against expectations for a rise of 0.5 percent.
The data bolstered the market's view that the Bank of Japan will take its time raising rates after lifting them in July for the first time in six years, to 0.25 percent.
"The market seems to have taken the inflation data as an incentive to sell the yen," said Masafumi Yamamoto, currency strategist at Nikko Citigroup. "But expectations for higher rates are unlikely to recede with this CPI report alone. So yen selling may be limited."
With rates in Japan lagging well behind those of other major currencies, the yen would likely remain weighed down in the near term, traders said. Still, few in the market were keen to buy the dollar aggressively before Bernanke speaks at 1400 GMT.
"The CPI data may have been weak, but the dollar hit a wall at the day's high, as there's still some demand to sell dollars," said Hiroshi Yoshida, a forex dealer at Shinkin Central Bank.
The dollar was at 116.70 yen near the day's high of 116.75 yen and up from around 116.55 yen in late US trade. The currency rose slightly on Thursday when investors brushed off a fall in US new home sales in July as the market had been factoring in a slide in the housing sector, traders said. The euro inched up to $1.2775. It had slipped to around $1.2745 as dealers trimmed long positions in the euro.
The single currency dipped on Thursday despite a key business climate index from Germany's Ifo institute beating expectations. Against the Japanese currency, the euro rose 0.2 percent to 149.05 yen, inching closer to a record high 149.75 yen struck at the start of the week.
The European Central Bank is expected to keep raising rates after bumping them up to 3 percent earlier this month, helping to narrow the euro's rate gap with the dollar and improve its yield advantage over the yen.