By Hiroyuki Kachi

The dollar maintained its strength in mid afternoon Asian trade Friday, after crossing the Y110 mark against the yen for the first time in more than five months on the back of positive U.S. data and comments about a looming U.S. rate increase from Federal Reserve chief Janet Yellen.

The greenback gained traction to hit Y110.78 midday in Tokyo, its highest since June 1. The U.S. currency then held most of its gains to change hands at Y110.59 around 0450 GMT. That compared with Y110.11 late Thursday in New York.

Ms. Yellen told lawmakers Thursday that a rate increase could come "relatively soon" and cited good progress in the U.S. economy. Data released Thursday showed U.S. inflation firming, housing starts rising at the fastest pace since August 2007 and weekly jobless claims falling to their lowest level since 1973.

The WSJ Dollar Index, a measure of the U.S. dollar against a basket of major currencies, was up 0.06% at 91.27. After briefly falling below the $1.06-level for the first time since Dec. 3 2015, the euro was lower at $1.0603 from $1.0620 late Thursday. The dollar was also higher against the Australian dollar and the Singaporean dollar.

Japan's finance minister on Friday said the yen's recent weakening was a sign of returning stability, welcoming the reversal in the currency's rise. "There have been some jittery movements, but I think it currently is extremely stable or ... regaining stability," Finance Minister Taro Aso said in parliament.

Investors looking at the dollar and yen are becoming increasingly mindful of a gap in U.S.-Japan interest rates differentials that is set to widen as U.S. rates climb while the Bank of Japan keeps a lid on rates.

"The pace of increase in [the U.S.] yields is rapid," said IG Securities market analyst Junichi Ishikawa. "It is highly possible that expectations for a faster pace of rate increase next year is causing higher yields," said Mr. Ishikawa, who added that the upcoming "dot plot" showing Fed policy makers' predictions for the level of the Fed funds rate will be closely scrutinized by investors.

The dollar has staged a strong rally following Donald Trump's victory in the U.S. presidential election last week. Expectations remain high that the new administration will boost fiscal spending and lower taxes, moves that will likely accelerate inflationary pressure, prompting the Fed to raise rates at a faster pace, Mr. Ishikawa said.

That is in stark contrast with monetary policy in Japan. The BOJ on Thursday offered to buy an unlimited amount of Japanese government bonds at fixed rates for the first time since the introduction of a new policy framework, the first clear sign that the central bank intends to keep a lid on rising yields following a recent global bond rout.

But not all market watchers are convinced the upward move in the dollar will continue through the coming year.

Expectations for the new U.S. administration will likely help support the dollar's strength for the time being, but a weaker dollar and a higher yen is the "more likely scenario" next year, said Minori Uchida, head of Tokyo global markets research at Bank of Tokyo-Mitsubishi UFJ.

"It's quite unlikely to see something that goes beyond what investors are expecting now," said Mr. Uchida, referring to Mr. Trump's likely policies. In addition, market players need to stay cautious about a possible turnaround in sentiment given risk factors such as the OPEC meeting later this month, weakness in emerging currenciesand the sustainability of the U.S. stock market's strength.

Interbank Foreign Exchange Rates At 00:50 EST / 0450 GMT

Latest Previous %Chg Daily Daily %Chg

Dollar Rates Close High Low 12/31

USD/JPY Japan 110.60-61 110.13-14 +0.43 110.77 109.99 -8.06

EUR/USD Euro 1.0601-04 1.0625-28 -0.23 1.0631 1.0584 -2.38

GBP/USD U.K. 1.2399-401 1.2417-19 -0.14 1.2424 1.2385 -15.85

USD/CHF Switzerland 1.0084-88 1.0069-73 +0.15 1.0106 1.0067 +0.66

USD/CAD Canada 1.3547-52 1.3520-25 +0.20 1.3566 1.3515 -2.09

AUD/USD Australia 0.7388-92 0.7404-08 -0.22 0.7418 0.7379 +1.41

NZD/USD New Zealand 0.7006-12 0.7023-29 -0.24 0.7037 0.7000 +2.58

Euro Rate

EUR/JPY Japan 117.26-30 116.99-07 +0.23 117.36 116.82 -10.33

Source: Tullett Prebon

Write to Hiroyuki Kachi at Hiroyuki.Kachi@wsj.com

(END) Dow Jones Newswires

November 18, 2016 00:38 ET (05:38 GMT)

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