Yen rises after report of BOJ discord, euro slips ahead of ECB

September 6, 2016 8:57 PM EDT

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By Dion Rabouin

NEW YORK (Reuters) - The dollar fell to a more than one-week low against the yen on Wednesday after a report from the Sankei newspaper that Bank of Japan policymakers are divided ahead of the central bank's next meeting.

The Bank of Japan is split on whether to add stimulus at its Sept. 20-21 policy meeting, where central bank Governor Haruhiko Kuroda has said the board will conduct a comprehensive assessment of the effects of its stimulus program.

"The yen is strengthening on the back of this story and unwinding some expectations that the BOJ would ease policy at their September meeting," said Ian Gordon, FX strategist at Bank of America Merrill Lynch.

The dollar fell nearly 1 percent to its lowest against the yen since Aug. 26, when Federal Reserve Chair Janet Yellen gave an upbeat speech on the economy that revived bets of a rate hike in the near term.

The dollar recouped some of those losses as investors took profits on the strong move, which followed a 1-percent drop against the yen on Tuesday. The dollar was last down 0.25 percent at 101.73 yen.

In Europe, sterling fell against the dollar for the first time in six sessions, hurt by weak factory data. It was 0.75 percent lower at $1.3334.

The euro edged down 0.1 percent versus the dollar as traders took defensive positions ahead of Thursday's European Central Bank policy meeting.

"There is the possibility that (the ECB) could sound a more cautious tone given some of the weak inflation readings we received for the month of August," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange Inc.

Esiner said traders also were wary the central bank might announce an extension to its quantitative easing program, making the currency less attractive.

The dollar index, which tracks the dollar against six global peers, touched its lowest since Aug. 26, but reversed losses in afternoon trading to rise with the euro and yen. It was last up 0.15 percent to 94.992.

The Bank of Canada announced it would keep interest rates unchanged at 0.5 percent. The news reversed earlier selling in the Canadian dollar , which rose 0.4 percent.

The New Zealand dollar rose 0.4 percent against its U.S. counterpart, touching its highest since May 15, 2015. The kiwi has benefited from rising milk prices and the country's 2 percent short-term interest rate, which is well above the United States' 0.25 percent to 0.5 percent.

(Reporting by Dion Rabouin; Editing by Lisa Von Ahn and Grant McCool)

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