FOREX-Dollar falters on Fed uncertainty, US inflation key
* Fed tapering uncertainty weighs on dollar
* Markets to focus on U.S. inflation at 1230 GMT
* USD/JPY under pressure after talk JP corp tax may not be cut
* Euro helped by signs of growth in Europe
By Anooja Debnath
LONDON, Aug 15 (Reuters) - The dollar saw small but broad-based losses on Thursday as lack of clarity over when the Federal Reserve might start trimming its stimulus dragged on the U.S. currency.
The dollar was down 0.1 percent at 81.498 against a basket of currencies.
The greenback's fortunes have been tied for months to expectations of when the U.S. central bank will start to "taper" its monthly asset purchases from a current $85 billion. It slid more than 4 percent between July 9 and August 8, since when it has risen slightly but not made significant gains.
St. Louis Fed President James Bullard added to the uncertainty late on Wednesday, saying he had not made up his mind if next month's policy meeting would be too soon to start curbing bond buying, as he was wary of being too aggressive.
With U.S. inflation at around half the Fed's 2 percent target, Bullard cited the risk of deflation.
"This sort of broad two-way bouncing around in the dollar is what we are going to see in the near-term, until the market has some certainty on Fed tapering, and that probably won't come until the Fed actually announces it," said Adam Cole, global head of FX strategy at RBC Capital Markets.
One sticking point for Fed policymakers is the level of U.S. inflation, which is below the Fed's target. That will heighten the importance of consumer price data due at 1230 GMT.
A rise above the forecast 0.2 percent would add to the case for trimming stimulus and support the dollar.
"The level of inflation will have a big bearing on the Fed tapering story," said Daragh Maher, FX strategist at HSBC. "Today we might get a pick-up in inflation and in my mind that would boost the tapering expectations in the market."
The dollar was up 0.1 percent at 98.09 yen, still not far from the day's low of 97.58. Resistance was cited at the 55-day moving average of 98.42 yen.
The yen had earlier risen against the dollar after Japan's chief government spokesman Yoshihide Suga and Finance Minister Taro Aso played down a story in the Nikkei business daily that the government was considering cutting the corporate tax rate.
Japanese stocks fell, pushing the yen higher. The yen has recently held an inverse correlation to Tokyo shares.
The yen has faltered against the dollar lately on expectations Japan will take fresh steps to end deflation. Aso's comments that corporate tax cuts would not have an immediate impact was seen as a blow to that view.
Meanwhile, the euro zone's emergence from recession, confirmed on Wednesday, has narrowed the yield differential which has favoured the dollar over the single currency due to expectations the Fed was moving away from its easy policy.
That has been reflected in the spread between 10-year U.S. Treasury bond and German bund yields. The 10-year yield premium offered by U.S. debt currently stands at 88 basis points, down from more than 100 in July.
The euro rose 0.2 percent at $1.3285. A reported options expiry at $1.3275 could keep the pair near that level.
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