By Kevin Buckland

TOKYO (Reuters) – The dollar edged higher on Thursday, buoyed by expectations of aggressive monetary tightening from the Federal Reserve, but was far from the previous day’s highs amid jitters about what a gathering of ministers will of Finance could say about its rapid appreciation.

The greenback added 0.36% to 128.335 yen, after hitting a two-decade high of 129.430 on Wednesday as the Bank of Japan (BOJ) intervened in the bond market for the third time in three months to defend its target. zero percent return. , in stark contrast to the Fed’s increasingly hawkish stance.

The dollar index – which measures the currency against six peers including the yen – rose 0.11% to 100.45, following its decline in the previous session from a more than two-year high at 101.03.

Also allowing the dollar to ease overnight, yields on benchmark Treasuries retreated from the highest level since December 2018 at nearly 3%, as bearish buyers emerged. Those yields, however, also rose slightly in Tokyo trading on Thursday.[US/]

“Few central banks will match the Fed this year for policy hikes and balance sheet shrinkage, resulting in a dramatic policy differential in favor of the USD,” Westpac strategists wrote in a client note.

The dollar index “should remain bid in this environment, with talks of 101-102 likely to rise in the near term,” they said.

San Francisco Fed President Mary Daly said Wednesday she believes the case for a half-percentage-point rate hike next month is “comprehensive” and “strong,” adding to recent comments from other Fed officials backing larger rate hikes.

Markets are currently pricing in half-point increases in May and June.

In contrast, the BOJ on Wednesday offered to buy unlimited amounts of 10-year Japanese government bonds for four straight sessions as yields bumped up against the maximum 0.25% leeway around its target of zero percent, showing its commitment to ultra-easy stimulus settings ahead of its policy meeting next week.

BOJ Governor Haruhiko Kuroda remained convinced that a weak yen is generally good for the economy, but admitted earlier this week that the measures had been “pretty harsh” and could hurt companies’ business plans. Japanese companies.

Finance Minister Shunichi Suzuki was more adamant, saying on Tuesday that the damage to the economy from a currently weak yen outweighs the benefits, in his strongest statement yet.

He is due to meet US Treasury Secretary Janet Yellen this week on the sidelines of the Group of 20 financial leaders meeting in Washington DC, urging traders to cut bearish bets on the yen on the potential for stronger rhetoric on the currency.

Japanese policymakers “have yet to fully utilize their tools of verbal intervention – the next phase would typically involve describing moves as ‘speculative’ and threatening to ‘take decisive action,'” wrote Adam Cole, strategist in Head of Currencies at RBC Capital Markets, in a research note.

“If we get to this point, the hurdle for the next logical step in physical intervention might be lower than commonly perceived.”

But on whether the intervention would work, he said it “could restore some short-term balance to the markets and manage the pace of JPY depreciation (but) in the longer term, there’s no no prospect of the BOJ mopping up all of the JPY selling we anticipate from inside Japan as the Fed’s hike cycle gets off to a good start.”

Elsewhere, the euro eased 0.11% to $1.08425, while the pound slipped 0.14% to $1.30555.

The Australian dollar fell 0.20% to $0.7436.

The New Zealand dollar fell 0.40% to $0.67755, hurt by weaker than expected consumer price data.

(Reporting by Kevin Buckland; Editing by Christopher Cushing)