By Saqib Iqbal Ahmed and Laura Matthews
NEW YORK (Reuters) -The dollar fell against the yen on Thursday, after the Bank of Japan's less dovish remarks and U.S. data suggested upward price pressures continue to ease, keeping the Federal Reserve on track to cut interest rates by 25 basis points next week.
Data on Thursday showed U.S. consumer spending increased slightly more than expected in September, putting the economy on a higher growth trajectory heading into the final three months of the year.
Inflation by the Fed's targeted measure, the year-over-year increase in the personal consumption expenditures index, was 2.1% in September, down from an upwardly revised 2.3% in August, a Commerce Department report showed. The Fed aims for 2% inflation.
"The baseline is still that they cut by 25 basis points next week," said Thierry Wizman, global FX and rates strategist at Macquarie in New York.
But with U.S. inflation expectations on the rise, Wizman said, the Fed may pay attention to that and may consider not cutting rates.
"Even with the market having adjusted somewhat, it would still come as a surprise," he said.
The Fed is likely to go ahead with cutting short-term U.S. borrowing costs by a quarter percentage point next week, traders bet on Thursday, with futures contracts putting the chances of a 25 basis point cut next week at 94.7%.
The dollar also came under pressure against the yen after the Bank of Japan took a less dovish tone than expected, while the euro was stronger after data showed that the euro zone's inflation accelerated more than expected in October, bolstering the case for caution in European Central Bank interest rate cuts.
The dollar was down 0.8% against the yen at 152.18 yen, and the euro was last 0.04% higher against the dollar at $1.0859.
"Some of the move is likely a function of yen demand after a marginally more hawkish BoJ during the Asia session, as well as some upside in the euro after hotter-than-expected CPI figures dented the chances of a 50 basis points December ECB cut," said Michael Brown, senior research strategist at Pepperstone.
Traders were also likely taking the opportunity to book profits after the dollar's strong run in recent weeks, Brown said.
The dollar index, which measures the U.S. currency's strength against a basket of major peers, rose as much as 4.5% from its September lows.
Attention now turns to Friday's closely watched nonfarm payrolls report and the U.S. presidential election on Tuesday.
Economists polled by Reuters estimate 113,000 jobs were added in October, although the number could be lower due to recent hurricanes.