LONDON/SINGAPORE, July 23 (Reuters) - The yen rose on Tuesday as investors reacted to comments from a senior Japanese politician that added to pressure on the Bank of Japan to keep hiking rates to boost the currency.
Meanwhile, the dollar inched higher as traders waited for inflation data later in the week, and the Australian and New Zealand dollars suffered after China's surprise interest rate cut.
The dollar was last down 0.55% against the Japanese yen at 156.13, after falling to a five-week low of 155.375 on Thursday.
Senior ruling party official Toshimitsu Motegi said overnight that the Bank of Japan should more clearly indicate its resolve to normalise monetary policy, including through steady interest rate hikes. The BOJ next sets rates on July 31.
"The yen derived support from further comments from Japanese politicians overnight," said Lee Hardman, currency analyst at Japanese bank MUFG, who added that his comments indicated "growing unease" among politicians about BOJ policy.
"It closely follows calls last week from Digital Transformation Minister Kono Taro who called on the BOJ to raise interest rates to provide more support for the yen."
The yen has found some support on the back of Tokyo's recent bouts of intervention to prop up the currency and as traders looked to the BOJ's decision. However, most economists polled by Reuters expect the BOJ to keep rates on hold at the meeting.
The dollar index , which tracks the U.S. currency against six peers, rose slightly to 104.36, after falling to a four-month low of 103.64 last week.
The euro was down 0.22% at $1.0868. Sterling was 0.15% lower at $1.2911.
Trading was relatively subdued in a week with little in the way of economic data until the release of U.S. personal consumption expenditure (PCE) inflation figures for June on Friday.
The market reaction to U.S. President Joe Biden's decision to bow out of the election race was muted, though there was some unwinding of the so-called Trump trade, which has seen the dollar and U.S. Treasury yields ease a touch.
The Australian and New Zealand dollars struggled to regain their footing on Tuesday after China's move to cut several key interest rates.
China surprised markets on Monday by cutting major short and long-term interest rates in its first such broad move since last August, signalling intent to boost growth in the world's second-largest economy.
The two Antipodean currencies, often used as liquid proxies for the Chinese yuan, extended losses after slumping in the previous session in the wake of the news.
The Australian dollar fell to a three-week low of $0.6622, while the New Zealand dollar hit its weakest level since early May at $0.5962.
"For the Aussie and the kiwi, they tend to be reflecting a more liquid and free expression in terms of the realities currently facing the
Chinese economy," said Rodrigo Catril, senior FX strategist at National Australia Bank.
Reporting by Harry Robertson in London and Rae Wee in Singapore; Editing by Stephen Coates, Christopher Cushing, Timothy Heritage and Gareth Jones
