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TOKYO, July 3 (Reuters) The dollar held near three-week lows against the yen and the euro on Monday as traders sat tight ahead of a survey of Japanese business sentiment that could spur the Bank of Japan to raise interest rates next week from zero.
The U.S. currency took a battering on Friday as tame U.S.
inflation data stirred expectations that the Federal Reserve may have arrived at the end of its two-year campaign of tightening monetary policy.
Tokyo dealers were on tenterhooks ahead of the BOJ's quarterly tankan survey of corporate sentiment due at 2350 GMT, which is forecast to show a slight improvement in confidence.
''If the figures come in stronger than expected, the yen could break through 114 yen,'' said Kota Kimura, forex manager at Shinkin Central Bank.
A Reuters survey of 25 economists produced a median forecast of plus 22 for the diffusion index for large manufacturers in June, higher than 20 in the March survey.
A dive in Japanese share prices and slower personal consumption growth due to poor weather may have weighed on sentiment in some industries.
Interest will centre on large firms' capital spending plans, which are seen rising by a median 8.8 percent in the year ending in March 2007.
Such an outcome could reinforce market expectations for the BOJ to hike rates for the first time in six years, possibly as early as next week's Policy Board meeting.
In early Asian trade, the dollar traded around 114.30 yen.
That was down slightly from the level in late U.S. trade on Friday, when the U.S. currency fell to 114.18 yen on trading platform EBS, its lowest since mid-June.
The euro was a tad lower at $1.2780 after climbing around 1 percent on Friday to $1.2794, the highest level since June 8.
The single currency was at 146.15 yen, hovering near a record high of 146.65 yen hit last week.
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