Dollar inches up vs yen, extends post-Fed gains

TOKYO, May 10 (Reuters) The dollar inched higher against the yen on Thursday, extending gains made after the Federal Reserve held benchmark U.S. interest rates steady and said its main worry is that inflation will fail to moderate.

In a widely expected decision, the Fed kept the benchmark federal funds rate unchanged at 5.25 percent on Wednesday and said in a statement that core inflation remained somewhat elevated.

''There have been some buy-backs of the dollar,'' said a trader for a Japanese trust bank, adding that the Fed statement wasn't as dovish as some traders had been bracing for and that the dollar could see more short-covering in the near term.

The dollar stood at 120.18 yen as of 2334 GMT, up slightly from late U.S. trading on Wednesday and edging closer to a peak of 120.47 yen hit last week that was the highest since Feb. 27.

The euro stood at $1.3530 little changed from $1.3528 in late New York.

After the U.S. central bank announcement, interest rate futures pared back the perceived chances of a Fed rate cut to a single 25 basis-point cut in the fourth quarter.

Investor focus now shifts to rate decisions on Thursday from the Bank of England, which is seen raising rates to 5.5 percent, and the European Central Bank, which is seen likely to hold rates at 3.75 percent but signal a hike in June.

Investors will also be watching a speech by Bank of Japan Governor Toshihiko Fukui for clues on when the BOJ may raise interest rates from 0.50 percent.

Reuters JK SBA VP0540