TOKYO, Jan 18 The yen inched higher against the dollar but stayed close to a 13-month low

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TOKYO, Jan 18 (Reuters) The yen inched higher against the dollar but stayed close to a 13-month low on Thursday as last-minute speculation that the Bank of Japan could keep interest rates steady weighed on the low-yielding currency.

Sources, not at the central bank, but familiar with the BOJ's thinking told Reuters late on Wednesday that it was likely to forgo a rate hike, wanting more time to assess the strength of consumption and a possible pick-up in weak consumer prices.

Various Japanese media have also reported the BOJ is likely to hold off from raising interest rates this week, surprising investors who had thought a rate rise to a decade-high 0.5 percent from the current 0.25 percent was a done deal.

''If a decision to hold off from raising rates is confirmed I think there is a good possibility that the yen will come under some more selling pressure,'' said Masafumi Yamamoto, currency strategist for Nikko Citigroup in Tokyo.

Even if the BOJ does decide to raise interest rates on Thursday, the yen's gains are likely to be limited due to the view that there will be no further monetary tightening in the short term, Yamamoto said.

The dollar stood at 120.59 yen as of 0134 GMT, down slightly from around 120.65 yen in late U.S. trading on Wednesday.

The yen has suffered since investors sharply scaled back expectations for a BOJ rate rise on Thursday, helping the dollar climb to a 13-month peak of 120.88 yen on electronic trading platform EBS on Wednesday.

The euro was little changed at $1.2944 Traders said the dollar was likely to rise to 121 yen if the BOJ keeps interest rates unchanged as most investors now expect.

But its advance could be slow as some traders are probably holding long dollar positions after its rise in the previous session, said a trader for a major Japanese trading house.

After the rate decision, the spotlight will turn to a news conference by BOJ Governor Toshihiko Fukui.

Many investors now expect the BOJ to raise rates in February even if it doesn't do so on Thursday. If the BOJ holds rates steady, traders said they would focus on whether Fukui drops any hints about the possibility of a rate rise next month.

REUTERS PKS BST0758

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