FOREX-Dollar rises to 4-1/2-month high vs yen; Draghi remarks buoy euro


* ECB's Draghi plays down risk of negative deposit rates

* Dollar/yen hits highest since July following Fed minutes

* Minutes revive prospect of U.S. stimulus tapering soon

* Aussie falls; RBA says open-minded on intervention

By Julie Haviv

NEW YORK, Nov 21 (Reuters) - The dollar rose to its highestagainst the yen in more than four months on Thursday, stillbenefiting from Federal Reserve minutes released the day beforethat suggested U.S. policymakers could start scaling backstimulus earlier than expected.

The euro, meanwhile, recovered earlier losses against thedollar after European Central Bank President Mario Draghi playeddown the possibility of the bank implementing negative depositrates. Reports on negative rates had pressured the euro onWednesday, adding to losses after the Fed minutes.

"However, the shift in the policy outlook may continue toweigh on euro/dollar as we see a growing number of ECB officialsshow a greater willingness to implement negative deposit rates,and the central bank may have little choice but to takeunprecedented steps in the coming months as growth and inflationremains subdued," said David Song, currency analyst at DailyFXin New York.

"In turn, the ECB may use a combination of policy tools tocombat the threat for deflation and euro/dollar may take afurther hit from the next FOMC meeting amid talks of a Decembertaper," he said.

Minutes from the last Federal Open Market Committee meetingin October showed U.S. policymakers felt there was room to beginscaling back the Fed's $85 billion monthly bond purchase programat one of their next few meetings if warranted by economicconditions.

Many market participants expect the Fed to start reducingits bond purchases in March 2014.

Against the Japanese yen, the dollar rose to 101.15yen, its highest since July 10. It was last up 1.1 percent at101.08 yen.

The yen came under strong selling pressure as market playersexpected Japan's monetary policy to stay ultra-loose for sometime.

"With U.S. monetary policy officials moving towardtightening while the (Bank of Japan) is fully committed to anexpansionist policy, dollar/yen may be finally ready to resumeits rally and if it can clear the resistance at 101.50 it maytarget the yearly highs over the next several weeks," said BorisSchlossberg, managing director of FX strategy at BK AssetManagement in New York.

The dollar showed little reaction to a mixed bag of Jobless claims fell in the latest week, while aMid-Atlantic business survey from the Philadelphia Fed showedits lowest reading since May.

Speaking in Berlin, Draghi said the possibility of negativedeposit rates was discussed at the ECB's last policy meeting andthere had been no news since then. He also said the central bankdid not see deflation materializing.

The euro was last trading up 0.2 percent at $1.3464,not far from the session high of $1.3478 and above an earlierone-week low of $1.3398.

Draghi's comments were interpreted as differing from anunsourced report on Wednesday which said the ECB may considermaking banks pay to deposit cash with it overnight and causedthe euro to fall. An ECB spokeswoman declined to comment.

Much has been made about the contrast in the monetary policystances of the ECB and the Fed, but Jane Foley, senior currencystrategist at Rabobank in London, said that "until Fed taperingis upon us, euro/dollar will remain well supported in spite ofthe dovish threats of the ECB."

The euro rose 1.2 percent against the yen to135.94 yen, after earlier hitting a four-year peak of 136.04yen.

Earlier, weak French business activity data was offset bybetter-than-expected German business activity, although a softreading for the euro zone as a whole continued to point to afragile economic recovery.

Sterling hit a four-year high of 163.23 yen andwas last changing hands up 1.3 percent at 163.14 yen.

Elsewhere, the Australian dollar fell sharply after ReserveBank of Australia Governor Glenn Stevens said he was"open-minded" on intervention to push the currency lower.

The Aussie last traded at US$0.9218, down 1.2percent, according to Reuters data.

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