* Euro falls from multi-year high versus yen * U.S. retail sales unexpectedly fell in March, hits dollar * Yen heads for weekly losses, weakening trend intact By Wanfeng Zhou NEW YORK, April 12 The dollar declined from a four-year peak against the yen on Friday after an unexpected fall in U.S. retail sales last month reinforced expectations the Federal Reserve will keep monetary policy loose to support the U.S. economy. Even so, any rebound in the yen is expected to be short-lived following the Bank of Japan's announcement last week of aggressive monetary easing to fight decades-long deflation. Traders said it's only a matter of time before the dollar rises above the 100-yen mark. U.S. retail sales fell 0.4 percent in March, the Commerce Department said, contracting for the second time in three months in a sign the American economy may have stumbled at the end of the first quarter. "It is the latest in a growing list of economic numbers that will likely keep the dollar pressured and the Fed in no hurry to normalize policy," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. Separate data on Friday showed U.S. consumer sentiment tumbled in April. The Fed's bond-buying program, which equates to printing money, has been a major headwind for the dollar in recent years. But minutes from recent Fed meetings suggested some policymakers expected to taper the pace of asset purchases sometime this year. The dollar fell 0.8 percent against the yen to 98.87 yen . It had earlier risen as high as 99.80 yen, near a high of 99.94 on Reuters data on Thursday, the strongest since April 2009. On the week, the dollar was up about 0.7 percent against the yen, its second straight week of gains. It was on track for its largest two-week gain versus the yen since early 2009. The dollar had gained about 6 percent against the yen since the BoJ pledged last week to inject about $1.4 trillion into the Japanese economy in less than two years. But the rally has slowed near the psychologically important 100 level, with traders citing hefty option barriers and dollar selling pressure from Japanese exporters. "There is a correction taking place in the wider yen selloff that we have seen," said Chris Walker, currency strategist at Barclays. "But drops in the dollar/yen have been shallow and are good levels to short the yen. We forecast dollar/yen to rise to 103 yen in a month's time." The BoJ's steps have prompted many analysts to revise up their forecasts for the dollar's strength against the yen. Societe Generale analysts now target an eventual rise to 110, up from 103 previously, while Bank of Tokyo Mitsubishi UFJ forecasts dollar/yen at 109 yen in the next 12 months. The euro slipped 0.8 percent to 129.49 yen, retreating from 131.11 yen set on Thursday, its highest in more than three years. CAPITAL FLOWS On Friday BoJ Governor Haruhiko Kuroda said he had taken all necessary steps to meet the central bank's 2 percent inflation target in two years and will try to minimize volatility in the Japanese government bond (JGB) market caused by the massive bond buying program. Fund managers and analysts say that once the volatility in the bond market settles, Japanese investors are likely to reallocate money overseas in search of higher yields. "With the BoJ now a major buyer of JGBs, expectations are that Japanese investors in JGB's -- mainly banks, insurance companies and pension funds -- will start to allocate part of their money to foreign assets," said Jaco Rouw, fund manager at ING Investment Management. "This might partly be on an unhedged basis if the BoJ successfully creates expectations of a weaker yen. As almost all yen weakness so far has been driven by the international financial community, this Japanese flow should be the next leg of further yen depreciation." The data shows no such flow yet, but analysts expect that may change quickly. Against the dollar, the euro was down 0.1 percent at $1.3091 , weighed down concerns about Cyprus. Reported option expiries around $1.3000 could likely keep the currency pinned around that level. Cyprus said its financing needs under its international bailout have risen to around 23 billion euros, from 17.5 billion euros originally, because its deteriorating economy will depress its revenues. It said the increase would not lead to additional demands on bank depositors.