* Economy minister suggests yen has weakened enough
* BOJ meeting, Bernanke’s Congressional testimony in focus
* Dollar index off near-3-yr high
By Anirban Nag
LONDON, May 20 (Reuters) - The yen rose from a 4-1/2-year low against the dollar on Monday after Japan’s economy minister suggested the country’s currency might have weakened enough, leading some investors to cut hefty bets against it.
The dollar fell 0.6 percent to 102.55 yen, having slid about 1 percent to 102 in the Asian session. The euro lost 0.5 percent to 131.85 yen after plumbing 131.045. Last Friday, the dollar reached a 4-1/2-year high of 103.32 yen, while the euro hovered near a 3-1/2-year peak of 132.78 yen.
But analysts said any sharp dip in the dollar against the yen was a buying opportunity even after Economy Minister Akira Amari said the yen’s excessive strength has largely corrected and further weakness could damage Japan’s economy.
The Bank of Japan holds a policy meeting on Tuesday and Wednesday.
“Dollar/yen had overshot both from a technical as well as from the extreme short positioning that had seen against the yen,” said Alvin Tan, currency strategist at Societe Generale.
“But any dip in dollar/yen towards 101 or 102 yen is a buy as Japanese policymakers are clear that there will be more asset purchase or quantitative easing in the longer term.”
Tan said momentum indicators like the 14-day relative strength index showed the dollar was in overbought territory against the yen and hence a pullback was due.
Data on Friday showed currency speculators increased bets in favour of the dollar to the highest in 11 months in the week ended May 14, while increasing bets against the yen.
Investors will look closely at Federal Reserve Chairman Ben Bernanke’s testimony to Congress later this week.
He has show no signs of wanting to taper the Fed’s bond-buying plan any time soon, but the programme may be slowed later this year as the U.S. labour market improves.
“We are dollar bulls and expecting more pieces of the puzzle to fall into place - most notably serious speculation over the normalisation of Fed policy, which can drive US money market rates and the dollar substantially higher,” Chris Turner, head of currency strategy at ING, wrote in a note.
Against a basket of currencies, the dollar took a breather, trading down 0.3 percent at 84.026. It had risen to 84.371 on Friday, its highest level since July 2010.
A soft dollar pushed the euro 0.2 percent higher to $1.2860 , off a 6-week low of $1.2796 hit on Friday.
But further gains are likely to be muted given strong expectations the European Central Bank may cut the deposit rate - at which banks park surplus cash with the ECB - below zero in coming months.