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FOREX-Dollar edges up vs yen, sterling drives higher

* Dollar, euro gains against yen, little impact from BOJ

* Iraq fighting underpins dollar and yen safe havens

* Sterling pushes to five-week highs after Carney points to rate rise

By Patrick Graham

LONDON, June 13 (Reuters) - The dollar was up around a third of a percent against the yen as markets listened to the Bank of Japan's latest comments on policy on Friday while sterling soared on the back of a surprise hint from the Bank of England that interest rates could rise this year.

The big action overnight was all on the pound. BoE Governor Mark Carney sent money market rates spinning higher by telling the annual Mansion House dinner that rates may rise sooner than markets currently expect.

That sent sterling to a 19-month high against the euro and close to key resistance around $1.70, up around 1 percent since the close of play in London on Thursday.

"For us this was a clear signal that the first hike will come this year," said Lee Hardman, a strategist with Bank of Tokyo Mitsubishi-UTJ in London. "We think the first month for the bank to move will be November.

The move was all the more shocking given how little faith the market has shown in sterling's ability to rise further against the dollar after a 10 percent rise in the past year. The currency has baulked so far this year at any attempt to breach $1.70 and some dealers said sellers had already appeared around $1.6980.

"The market is getting very ahead of itself we are very much in overshoot land," said one trader in London.

Most analysts and traders have continued to back sterling against the euro, however, which was worth less than 80 pence for the first time since November 2012 as European trade got going.


Both the yen and the dollar looked supported going into the weekend given concerns over a conflict in Iraq that has prodded oil prices higher this week.

Slightly firmer U.S. bond yields helped the dollar recover from two-week lows against the yen. The Bank of Japan's decision to hold monetary policy steady underpinned the Japanese currency, though the outcome was widely expected and factored into positions.

There was little price movement around Governor Haruhiko Kuroda's remarks at a news conference afterwards and traders said the yen looked pinned in between 101.70 and 102.20 yen per dollar.

"It's very hard to find a good driver to raise dollar/yen expectations," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

The dollar added about 0.3 percent on the day to buy 101.97 yen, after dropping as low as 101.60 yen on Thursday. It rose to its session high of 101.83 yen before the BOJ outcome, and had little reaction the actual announcement.

The euro also gained similarly to buy 138.16 yen.

Against the dollar, the euro was a touch higher at $1.3568, having again resisted a push toward a four-month low of $1.3503 set last week after the European Central Bank unveiled a package of monetary easing, becoming the first major central bank to charge financial institutions for parking their funds with it.

(Editing by Alexandra Hudson)