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© Reuters. FILE PHOTO: A U.S. hundred dollar bill and Japanese 10,000 yen notes are seen in this photo illustration in Tokyo, February 28, 2013. REUTERS/Shohei Miyano

By Rae Wee

SINGAPORE (Reuters) – The yen got a boost on Thursday on expectations that the Bank of Japan will review the side effects of its monetary easing, while the dollar paused its retreat and wobbled near a seven-month low against the euro ahead of U.S. inflation data later in the day.

The Japanese yen jumped nearly 0.7% to 131.58 per dollar in early Asia trade, following a Yomiuri report that the BOJ will review the side effects of its monetary easing at next week’s policy meetings and may take additional steps to correct distortions in the yield curve. The yen last bought 131.92 per dollar.

The news follows the BOJ’s surprise tweak in December to its bond yield control, though the move has failed to address distortions caused in the bond market from the central bank’s massive bond buying.

“The report is likely to add on to the (yen) optimism,” said Saktiandi Supaat, regional head of FX research and strategy at Maybank.

“The upcoming BOJ meeting … expectations of upward revisions to the bank’s inflation forecast and the forthcoming announcement of a new BOJ governor, will likely feed into the expectation of a policy shift.”

Elsewhere, the dollar stood cautiously steady ahead of the closely watched U.S. inflation data out later on Thursday, which will provide more clarity on how much inflation in the world’s largest economy has tamed and on the Federal Reserve’s rate-hike path.

Sterling was little changed at $1.21505, while the crept 0.02% higher to 103.14, though remained not far off its seven-month low of 102.93 hit earlier in the week.

Expectations that the Fed may be nearing the end of its aggressive monetary policy tightening campaign and that it may not have to raise rates as high as previously feared, has already sent the greenback tumbling to fresh lows against its peers this year.

“I think if we do get a pretty soft CPI report … that would indicate that inflation is on a sustained downward trend, which is what the FOMC is looking for,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:).

The euro was last 0.07% higher at $1.0764, after having surged to a seven-month peak of $1.07765 in the previous session.

“The euro has … strengthened on the back of some dovish repricing for the FOMC and also on top of that, we’ve got this belatedly hawkish ECB.”

The rose 0.11% to $0.69135, while the edged up 0.13% to $0.6375.

Australian inflation data released on Wednesday showed that annual inflation re-accelerated to 7.3% in November, after a surprise dip to 6.9% in October, underscoring the challenge facing the Reserve Bank of Australia as it tries to cool the economy.

“Some outsize rises in the price of a number of components mean that we may be waiting another month or two before we can confidently call ‘peak inflation’ in Australia,” said Rob Carnell, ING’s regional head of research, Asia-Pacific.

The two antipodean currencies have started the year on a strong footing against the backdrop of China’s reopening, which has driven demand for riskier assets.

The Chinese rose to a five-month top of 6.7545 per dollar on Thursday.

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