Dollar climbs to three-and-a-half-year high vs yen before U.S. jobs

SINGAPORE/SYDNEY (Reuters) - The dollar surged to a 3-1/2-year high against the yen on Friday, with the near-term focus on whether U.S. jobs data will fuel hopes for a further recovery in the U.S. labor market.

The euro eased versus the dollar but clung to the bulk of the gains made the previous day, when the European Central Bank wrong-footed investors who had positioned for a more dovish signal from ECB President Mario Draghi.

The yen remained under pressure as markets looked past the Bank of Japan's steady policy decision on Thursday to its April meeting, where new leaders are expected to take bolder action to defeat deflation.

The dollar edge up 0.6 percent to 95.37 yen. The greenback rose to as high as 95.45 yen earlier, its strongest level versus the Japanese currency since August 2009.

The dollar's surge against the yen at this particular juncture probably caught many market players off guard, said Satoshi Okagawa, senior global markets analyst at Sumitomo Mitsui Banking Corporation in Singapore.

"No one had thought such a move would occur before the jobs data...It was sort of like a surprise attack," Okagawa said.

Traders said dollar buying by Japanese importers on Friday helped add to the yen's weakness.

The focus now is on the U.S. jobs data due later on Friday. Economists polled by Reuters expect the U.S. economy to have created a net 160,000 jobs in February while the unemployment rate remained at 7.9 percent.

"If the jobs data turns out to be good I think we will start to see a 95 yen to 98 yen range," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo.

Market players expect the Bank of Japan to launch more monetary stimulus at its next meeting on April 3-4, when Haruhiko Kuroda, a vocal advocate of aggressive easing, is expected to have taken over as governor.

The BOJ is scheduled to hold two policy meetings in April, with the second one to be convened on April 26.

If the BOJ expands it monetary stimulus next month that could lead to the dollar trading in the 95-98 yen area or even open the way for a test of 100 yen, depending on how aggressively the central bank eases, said Ronald Ip, Director of Wealth Solutions Group for HSBC Global Markets.

The BOJ could consider options such as increasing asset purchases under its existing asset buying program, or bringing forward the start date of its open-ended asset buying scheme to around June from 2014, Ip said.

The central bank may also opt to start buying Japanese government bonds with longer maturities than it currently does under its existing asset buying program, he said. The BOJ now limits its buying of JGBs under that program to those with maturities of up to three years.

"If they are able to adopt these kinds of measures...then dollar/yen will go a bit higher," Ip said. If the BOJ fails to deliver in April, the dollar might fall back to around 90-92 yen, he added.

EURO SLIPS VS DOLLAR

The euro eased against the dollar but clung to the bulk of the gains made on Thursday, when the euro climbed about 1 percent as euro bears covered short positions after the ECB president gave no indication that the bank would cut interest rates further in the euro zone.

Draghi on Thursday played down the threat of contagion to other euro members stemming from a political stalemate in Italy. He also sounded upbeat on the outlook, saying there are many signs that market confidence in the euro area is returning.

The single currency slipped 0.1 percent to $1.3092.

Against the yen, the euro rose 0.5 percent to 124.88 yen.

Sterling, which had gained a brief reprieve after the Bank of England held fire on more economic stimulus on Thursday, fell 0.2 percent to $1.4984. Sterling had hit a 2-1/2-year low of $1.4965 on Thursday ahead of the BoE decision.

(Additional reporting by Hideyuki Sano in Tokyo; Editing by Jacqueline Wong)