* 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 rallied to itshighest against the yen in more than four months on Thursday,still benefiting from Federal Reserve minutes released the daybefore that 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 came out.
Minutes from the U.S. central bank's last policy meeting inOctober showed officials felt there was room to begin scalingback the Fed's $85 billion monthly bond purchase program at oneof their next few meetings if warranted by economic conditions.
"The Fed minutes did help the dollar a lot, especiallyagainst the yen, as it puts a December taper back onto thetable," said Vassili Serebriakov, currency strategist at BNPParibas in New York.
Many market participants expect the Fed to start reducingits bond purchases in March 2014.
The dollar rose to 101.10 yen, its highest since July 10. Itwas last up 1.0 percent at 101.04 yen.
The yen came under strong selling pressure as market playersexpected Japanese monetary policy to stay ultra-loose for sometime.
"With U.S. monetary policy officials moving towardtightening while the BoJ (Bank of Japan) is fully committed toan expansionist policy, dollar/yen may be finally ready toresume its rally and if it can clear the resistance at 101.50 itmay target the yearly highs over the next several weeks," saidBoris Schlossberg, managing director of FX strategy at BK AssetManagement in New York.
The dollar showed little reaction to a mixed bag of U.S.data: jobless claims fell in the latest week, while amid-Atlantic business survey from the Philadelphia Fed showedthe 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 said the central bank didnot see deflation materializing.
The euro was up 0.2 percent at $1.3458, not far fromthe session high of $1.3478 and above an earlier one-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 to 135.94 yen, after hitting a four-year peak of 136.04 yen.
Earlier, weak French business activity data was offset bybetter-than-expected German business activity, although a soft reading 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 at 163.14 yen, up 1.3 percent.
Elsewhere, the Australian dollar fell sharply afterReserve Bank of Australia Governor Glenn Stevens said he was"open-minded" on intervention to push the currency lower. The Aussie dollar last traded at US$0.9218, down1.2 percent.
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