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TOKYO, July 13 (Reuters) The dollar was hemmed in narrow ranges on Thursday as the Bank of Japan began a two-day policy meeting that was widely expected to result in a rise in Japanese interest rates for the first time in six years.

The yen was supported by a report in financial daily Nihon Keizai Shimbun that a majority of the Bank of Japan's nine-member policy board believes that economic growth and rising consumer prices warrant raising rates.

Traders had seized on comments from Japanese Finance Minister Sadakazu Tanigaki on Wednesday as an excuse to trim long yen positions built on expectations the BOJ would bump up overnight rates to 0.25 percent from virtually zero on Friday.

Tanigaki repeated his long-standing opposition to a rate increase, saying there was no need for the BOJ to end its zero rate policy because there were no concerns at present about inflation.

But few in the Tokyo market believe that the government's objections will affect the central bank's decision, just as the BOJ shrugged off the concerns of ruling party officials when scrapping its previous quantitative easing policy in March.

''You cannot keep interest rates low forever,'' said the chief trader at a European investment bank in Tokyo. ''The market has already discounted a rise of 0.25 on the overnight call rate.'' A Reuters poll taken earlier in the week showed that 21 out of 22 traders and analysts in Japan's interest rate market expect the BOJ to raise the overnight rate to 0.25 percent at the end of its policy meeting.

By 0525 GMT, the dollar was little changed at 115.45 yen, keeping its distance from a one-month low of 113.45 yen hit on trading platform EBS earlier in the week.

The dollar soared over 1 percent in the previous session after data showed the U.S. trade deficit widened less than expected in May to $63.84 billion from a downwardly revised $63.34 billion in April.

Forecasts had been for a gap of $64.90 billion.

The euro was almost flat at $1.2710 after falling 0.6 percent on Wednesday. It traded around 146.75 yen, unchanged but staying in sight of a record high of 147.42 yen struck last week.

Meanwhile, the Australian dollar jumped to a six-week high of $0.7558 against the U.S. dollar after the June labour force report was much stronger than expected, intensifying the risk of higher interest rates in Australia.

JAPAN RATES DWARFED Many investors are unsure whether the yen will benefit much from an increase in Japan's overnight rate, as it would do little to close the yen's yawning rate disadvantage.

At 5.25 percent, the U.S. rate will continue to dwarf Japanese rates for a while, while the European Central Bank is widely expected to boost its key rate to 3 percent next month.

For clues on the Japan rate outlook, investors will scour the comments from BOJ Governor Toshihiko Fukui at his news conference after the policy meeting. Fukui is expected to stress that the central bank will lift rates only gradually.

With many anticipating the BOJ will take its time in lifting rates, the question of whether U.S. rates will continue to rise is likely to stay in the spotlight.

Federal funds futures show a roughly 50 percent chance that the Federal Reserve will tighten policy at its next meeting in August.

''Even if there is a (BOJ) rate rise tomorrow, it's unlikely to set a new trend in the market,'' said a trader at a U.S.

brokerage in Tokyo.

''When it's over and done with, the focus is going to shift back to U.S. rates and fundamentals.'' Interest rate futures show the BOJ will likely raise rates to 0.5 percent by the end of 2006 and possibly to 0.75 percent by the end of the current business year in March.

REUTERS CS KP1225