Dollar firms in subdued trade as market awaits Yellen

By Lisa Twaronite and Ian Chua

TOKYO/SYDNEY (Reuters) - The dollar edged up slightly against its Japanese counterpart on Monday though major currency pairs largely stuck close to recent ranges, as investors awaited events this week including Federal Reserve Chair Janet Yellen's congressional testimony for cues on the outlook for U.S. monetary policy.

A batch of Chinese economic data on Wednesday and earnings results from major global banks this week kept investors wary, and gave them little incentive to take new positions.

Investors also awaited a policy review by the Bank of Japan on Tuesday, though the central bank was widely expected to maintain its policy and its broader economic outlook.

The BOJ next week may trim its economic growth forecast for the current year, sources familiar with its thinking said, reflecting soft exports and a bigger-than-expected slump in household spending after a sales tax hike in April, though the change would not tip any policy changes to come.

"There hasn't been significant structural change that requires measures from them," said Bart Wakabayashi, head of foreign exchange for State Street Global Markets in Tokyo.

"I'm surprised dollar-yen is as bid as it is," he added, in light of a lack of trading incentives.

The dollar index edged slightly higher to 80.217, inching away from a two-month low of 79.740 on July 1.

Speculators increased their bullish bets on the U.S. dollar in the latest week, with the value of the dollar's net long position rising to $10.34 billion in the week through July 8, according to the latest data from the Commodity Futures Trading Commission released on Friday. [IMM/FX]

The total value of positions rose from $8.65 billion the previous week when it was the smallest net long on the dollar in five weeks.

The euro, meanwhile, was steady at $1.3604, having wobbled on either side of $1.3600 in the past week.

European Central Bank President Mario Draghi is scheduled to give an introductory statement at the quarterly hearing before the Committee on Economic and Monetary Affairs of the European Parliament later in the day.

Investors also awaited the July ZEW survey on economic sentiment on Tuesday to gauge the impact of the Ukraine crisis on German confidence.

Against the yen, the greenback rose about 0.2 percent to 101.43, moving further off a seven-week trough of 101.06 yen plumbed last Thursday. The euro was flat on the day at 137.97 yen, recovering from last week's fall to a five-month low of 137.50 yen.

Demand for the safe-haven yen faded on Friday as concerns eased about the health of Portugal's largest bank and its impact on the euro zone financial system.

Traders said dollar bulls are unlikely to get too excited ahead of Yellen's testimony on Tuesday and Wednesday.

"If her recent public statements are any indication, expect no discomfort from the current stance of accommodative monetary policy," analysts at JPMorgan wrote in a note to clients.

They also expect Yellen to defend the principle that financial stability should remain primarily in the remit of regulators, while central banks should focus on macroeconomic stability.

The Australian dollar, meanwhile, kept its head down after the country's central bank chief again said the currency was too strong.

In an interview with the Weekend Australian published late last week, Reserve Bank of Australia Governor Glenn Stevens reiterated that some investors may be underestimating the risk of "a material decline" in the currency at some point.

The Aussie last traded at $0.9395, slightly higher on the day having dipped as low as $0.9370. Similar remarks from Stevens early this month saw the Aussie slide as far as $0.9327.

(Editing by Eric Meijer and Richard Borsuk)