Yen rallies after strong GDP; dollar softer

By Toni Vorobyova

LONDON (Reuters) - The yen hit a one-month high against a broadly softer dollar on Thursday after Japanese fourth quarter growth data came in surprisingly strong, reviving talk of a Bank of Japan rate hike next week.

The dollar continued losing ground, hitting a fresh six-week low against the euro, after comments on Wednesday from U.S. Federal Reserve Chairman Ben Bernanke rekindled debate about the prospect of a U.S. rate cut.

Japan's economy expanded at an annualized 4.8 percent in the October-December quarter, beating market expectations for growth of 3.8 percent, thanks to a recovery in personal consumption.

The figures stoked talk of a possible rate hike from 0.25 percent when the BOJ policy board meets on February 20-21.

Several Japanese politicians said the GDP data proved the economy was on the recovery path and Prime Minister Shinzo Abe said it was up to the BOJ to decide on monetary policy.

Analysts said this seemed to suggest that unlike last month, the BOJ will not come under political pressure not to hike.

"Now the GDP has been confirmed as very strong, the BOJ has probably got the green light from the government to do what it likes ... and I think that markets are now beginning to say that there will either be a hike next week or certainly in the next five weeks," said Peter Frank, senior FX strategist at ABN AMRO.

By 1205 GMT, the dollar was down half a percent on the day at 120.07 yen <JPY=>, having hit a low of 119.79 earlier -- last seen on January 11. The euro fell to 157.65 yen <EURJPY=>, retreating from a record peak of 159 yen scaled on Monday.