Yen hits 2-mth lows vs dlr after lacklustre data

TOKYO, Dec 26 (Reuters) The yen fell to a fresh two-month low against the dollar as Japanese consumption and consumer price data on Tuesday failed to dispel doubts about whether the Bank of Japan will raise interest rates in January.

The government said core consumer prices rose 0.2 percent in November from a year earlier, a result in line with market expectations, while all-households spending fell 0.7 percent in November, smaller than the expected decline of 1.3 percent.

''The household spending data was better than expected. But if you ask whether that means there is a 'go' sign for a Bank of Japan rate rise in January, I don't think that is the case,'' a Japanese trust bank trader said.

''I think the sense in the market is that a rate rise in January is still a bit difficult,'' the trader said, adding that the yen was likely to remain on the defensive.

The dollar stood at 118.95 yen as of 0104 GMT, after hitting a fresh two-month high of 118.98 yen earlier.

European and U.S. markets were closed on Monday for Christmas, and European markets will also be closed on Tuesday.

The euro stood at 156.22 yen up from around 156.10 yen in late Tokyo trading on Monday and edging close to a record high of 156.42 yen hit last week.

Traders said the yen could come under pressure as investors gradually return from Christmas holidays.

''When the market comes back in there will be a natural push to sell yen,'' said Luke Waddington, head of forex at Royal Bank of Scotland in Tokyo.

''I think people will start putting expectations (for a BOJ rate rise) further out,'' Waddington added.

Traders have scaled back expectations for a BOJ rate rise in January after BOJ Governor Toshihiko Fukui said last week that prices and consumption were somewhat weak.

But many market players still expect the central bank to raise interest rates by 25 basis points to 0.50 percent by the end of March.

Fukui had reiterated on Monday that he has no preset idea on the timing of future rate hikes and pointed to some weakness in consumption.

Reuters MQA VP0717