March 12 (Reuters) - The yen dropped against the dollar on Tuesday as the latest comments from Japanese officials dampened bets that the Bank of Japan could scrap its negative interest rate policy.
Elsewhere, the greenback rose slightly ahead of a key reading on U.S. inflation that will provide further clues on how soon the Federal Reserve could commence its rate easing cycle.
The yen was last 0.25% lower at 147.26 per dollar, its biggest daily fall since March 4.
BOJ Governor Kazuo Ueda offered a slightly bleaker assessment of the country's economy than he had in January, while Finance Minister Shunichi Suzuki said Japan was not at a stage where it could declare deflation as beaten. Their remarks come ahead of the BOJ's policy meeting next week.
"It remains our view that results from wage negotiations announced this week should provide the green light for the BOJ to begin tightening monetary policy next week," said Lee Hardman, senior currency analyst at MUFG Bank.
Wage demands "provided further evidence that wage growth is likely to be as strong if not stronger in the upcoming fiscal year," he added.
Japan's largest trade union confederation, Rengo, has demanded pay rises of 5.85% this year, topping 5% for the first time in 30 years.
One-week implied volatility on dollar/yen , which measures expectations for price swings in the currency pair, jumped to 12.115% on
Tuesday, its highest level since December, and was last at 11.992.
EYES ON U.S. INFLATION
While expectations are for core consumer prices to have risen 0.3% on a monthly basis in February, investors will be looking closely for any upward surprises, which could derail the pace of expected Fed rate cuts.
The dollar index rose 0.1% to 102.9, having hit a roughly two-month low of 102.33 last week.
The recent fall in the greenback comes on the back of rising bets the Fed could begin cutting rates by June, with comments from Fed Chair Jerome Powell last week cementing those expectations.
Jobs data released on Friday also showed that underlying labour market conditions in the world's largest economy were softening as the unemployment rate increased to a two-year high of 3.9% in February.
In the broader market, the euro was flat at $1.0928, after hitting a roughly two-month high hit last week.
Analysts expect the European Central Bank to communicate on Wednesday the outcome of discussions on the Eurosystem’s operational framework review.
"The move (to rise the Minimum Reserve Requirements, MRR) had been championed by the hawkish front of the Bank, and while not having clear short-term implications for the FX market, the decision to keep MRR unchanged may have repercussions on the dove-hawk balance in monetary policy decisions," said Francesco Pesole, forex strategist at ING.
Money markets fully price in a first ECB rate cut by June and a total of 100 basis points of easing by year-end.
Sterling dropped 0.2% to 1.2785 versus the stronger dollar after a muted reaction to British wages data rising slightly less than expected.
The Australian dollar edged 0.03% lower to $0.6612, while the New Zealand dollar slipped 0.1% to $0.6163.
In cryptocurrencies, bitcoin was down 0.34% to $71,898, but remained just a whisker away from a record high set in the previous session.
Ether peaked at $4,093.70, its highest since 2021, though later pared some of those gains to stand at $3,999.30.
Reporting by Rae Wee; Editing by Jamie Freed, Kirsten Donovan
