* BOJ holds rates, Japanese inflation weak
* Dollar/yen resistance at 100 yen still formidable
* U.S. Q1 GDP due, seen strong but worries grow about Q2
By Jessica Mortimer
LONDON, April 26 (Reuters) - The dollar fell against the yen on Friday after the Bank of Japan left policy unchanged and a forecast of weak Japanese inflation raised questions over the effectiveness of aggressive monetary easing.
But the U.S. currency, which also fell slightly against the euro, may get a brief lift later in the day if data shows the U.S. economy grew strongly in the first quarter.
BOJ Governor Haruhiko Kuroda said no board members called for further easing as the bank maintained its pledge to increase base money, or cash and deposits at the central bank, at an annual pace of 60 to 70 trillion yen. [ID:nT9N0A205B
The dollar was last down 0.7 percent at 98.56 yen as it pulled away from a four-year high of 99.95 yen hit on April 11 as drastic BOJ monetary stimulus announced earlier in the month triggered a sharp sell-off in the yen.
Traders and analysts also said the dollar’s failure to breach 100 yen left it vulnerable to a pullback. Selling has emerged from players hedging barrier option positions as well as from Japanese exporters when the level was approached.
“The failure at 100 yen has focused people’s minds on whether they may have been too optimistic on the near-term prospects for the yen,” Rabobank senior currency strategist Jane Foley said.
“Today’s inflation data suggested the market may have got ahead of itself in its optimism that monetary stimulus will create enough activity in the economy to push up inflation.”
The BOJ forecast inflation would rise to around 2 percent towards the latter half of the next three years, while data showed the fifth straight month of annual declines in core consumer prices in March, despite a weaker yen.
“While few market players think the dollar will break below 95 yen, it is starting to look a bit heavy,” said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
U.S. GDP data is forecast to reveal a strong annual growth rate of 3.0 percent. But analysts expected any dollar gains to be limited, with concerns growing that automatic government spending cuts will harm the recovery.
Data on Thursday showing an unexpectedly big slide in U.S. jobless claims alleviated some concerns about a slowdown in the world’s biggest economy.
But worries about the outlook persist, after signs that economic activity softened in March and early April.
“U.S. GDP is likely to be a healthy, robust number and this might give the dollar some support. But the market is looking ahead to the second quarter and there are perceptions that there could be another spring slump in growth,” Rabobank’s Foley said.
She said concerns were creeping in that the market may have got ahead of itself in predicting the Federal Reserve would soon slow its quantitative easing programme.
The euro was up 0.2 percent at $1.3038, recovering from a near-three-week low of $1.2954 hit on Wednesday.
But gains were expected to be limited due to growing expectations that the European Central Bank will cut rates next month to support the euro zone’s faltering economy.