By Suryatapa Bhattacharya

The dollar strengthened against the yen Wednesday for a second straight day, albeit in thin trade, after the release of encouraging U.S. economic data.

The dollar rose 0.2% against the yen after data showed U.S. consumer confidence climbed to its highest level in 15 years (http://www.marketwatch.com/story/consumer-confidence-hits-highest-level-since-2001-2016-12-27). The rise of the dollar was supported as U.S. Treasury yields rose Tuesday in response to the strong data.

Read:Treasury yields are headed up in 2017--the only question is by how much (http://www.marketwatch.com/story/treasury-yields-are-headed-up-in-2017the-only-question-is-by-how-much-2016-12-27)

Still, markets trading in Japan remained thin during the last week of the year as investors stayed away from unwinding their exposure to the U.S. dollar, given the short-term rate rise that has allowed them to earn as much as 1% yield on their interbank interest rates, said Yunosuke Ikeda, foreign-exchange strategist at Nomura.

"Today's yen weakening is not reflecting anything fundamental" happening in Japan markets, said Ikeda. "With thin trade volumes this time of the year, I don't want to take anything away from this small spike," he said.

Ikeda's forecast for the end of 2017 for the dollar-yen pair is Yen120, based on expectations that the U.S. Federal Reserve will raise rates twice. "In the case of three rate hikes, our target should be 125," he added.

"We feel the worst period is almost over for USD/JPY basis as the risk of further rate cut in Japan has receded," a J.P. Morgan investor note said, although the pair is predicted to decline from its current levels next year. Also, a "tightening pressure on USD/JPY basis" is expected, according to the investor note. The pair is predicted to hover around current levels in the last few days of this year.

The euro was at $1.0476, up from $1.0450 late Tuesday in North America, according to EBS. The dollar was at Yen117.69, up from Yen117.52. The British pound was at $1.2292, up from $1.2266.

(END) Dow Jones Newswires

December 28, 2016 01:45 ET (06:45 GMT)

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