TOKYO, Jan 17 The yen slid to a 13-month low against the dollar on Wednesday as media rep

TOKYO, Jan 17 (Reuters) The yen slid to a 13-month low against the dollar on Wednesday as media reports said the Bank of Japan was likely to hold interest rates steady this week, dousing widespread expectations for an increase.

Many investors had thought a BOJ rate rise to 0.5 percent this week was a done deal in the run-up to the central bank's two-day policy meeting ending on Thursday before the array of reports from Kyodo news agency, the Nikkei newspaper and others.

The reports said the BOJ wanted to take more time to assess the strength of consumer spending, the economy's soft spot, and wait to see more signs of a pick-up in consumer prices.

The sudden doubts about a BOJ shift this week further undermined the yen, which has already suffered from expectations for the BOJ to lift rates at a very slow pace and keep the yen the lowest yielding of major currencies for a while longer.

Market players have used the low-yielding Japanese currency as a source of funds to purchase higher-yielding currencies in the carry trade, helping drive sterling to eight-year highs against the yen on Tuesday.

''This has hurt the BOJ's credibility,'' said Toru Umemoto, chief FX strategist at Barclays Capital in Tokyo, adding that the BOJ's decision could send the dollar above 125 yen in the next few weeks.

''The carry trade has reached risky levels already, and the BOJ skipping a rate rise could lead to a further accumulation of carry trades. I'm worried there could be a crisis correction later.'' The dollar rose 0.2 percent to 120.85 yen and struck a high of 120.87 yen on electronic trading platform EBS, its strongest since December 2005.

The euro also gained 0.2 percent to 156.15 yen and pushed back towards the peak of 158.06 yen struck earlier this month, the strongest since the single currency was first launched in 1999.

The euro was little changed near $1.2925 Just before the latest media reports, the government seemed to back away from the possibility of asking the BOJ to postpone any vote to raise rates at this week's meeting.

While the government can make a proposal for a vote delay, the independent BOJ is not obliged to follow it. The government asked the BOJ to postpone its vote to raise rates in August 2000, but the central bank lifted rates anyway.

Most market players still expect the BOJ to raise rates in the first quarter, either in February or March, even if the central bank keeps them steady this week.

In a Reuters poll earlier this week, 29 of 35 traders and analysts in the bond and currency markets said they expected a rate rise this week. All but one believed a move would come in the first quarter.

REUTERS PKS BST0720