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TOKYO, Oct 13 (Reuters) The dollar pulled back from a 10-month high against the yen on Friday as investors shied away from chasing the U.S. currency higher after a report showing the U.S. trade deficit swelled to a record in August.

Market players were also cautious as the dollar has approached key milestones that if broken would likely add fuel to the rally: above 120 yen and through $1.25 against the euro.

Upbeat economic data have prompted the market to scale back expectations that the Federal Reserve may have to start cutting interest rates early next year to help prop up growth, thereby hurting the dollar's yield advantage over major currencies.

The yen has suffered as investors and speculators widely believe the Bank of Japan is going to take a long time in raising rates after hiking them to 0.25 percent from zero in July.

The BOJ wraps up a two-day policy meeting on Friday at which the impact from the U.S. economy is expected to be discussed and rates are widely seen staying at 0.25 percent.

Japan's central bank will release its monthly economic report at 0600 GMT, and BOJ Governor Toshihiko Fukui gives a post-meeting news conference at 0630 GMT.

Fukui told parliament on Thursday that the central bank would raise rates slowly and carefully.

''The yen remains weak, and we expect this trend to continue in the medium-term regardless of Fukui's message,'' said currency strategists at JPMorgan Chase in a note to clients.

The dollar was little changed near 119.30 yen holding off the high of 119.84 struck on Wednesday -- the strongest since last December.

A rise above 120 yen is expected to open the way for a test of the dollar's peak last year at 121.40.

The euro was also little changed at 149.75 yen and has had trouble trying to climb above 150 yen and towards the all-time high of 150.73 struck in late August.

The single currency hovered around $1.2555 and has so far withstood attempts to push it below $1.25.

The Fed's anecdotal beige book survey on Thursday painted a mixed picture of growth around the country, with only two regions noting a slowdown.

Fed officials have made clear in a slew of speeches that they are more concerned about inflation staying high or heating up even further, even as they keep an eye on the impact from the cooling housing market.

REUTERS DH PM0602