* 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 highest against the yen in more than four months on Thursday, still benefiting from Federal Reserve minutes released the day before that suggested U.S. policymakers could start scaling back stimulus earlier than expected.
The euro, meanwhile, recovered earlier losses against the dollar after European Central Bank President Mario Draghi played down the possibility of the bank implementing negative deposit rates. Reports on negative rates had pressured the euro on Wednesday, adding to losses after the Fed minutes.
"However, the shift in the policy outlook may continue to weigh on euro/dollar as we see a growing number of ECB officials show a greater willingness to implement negative deposit rates, and the central bank may have little choice but to take unprecedented steps in the coming months as growth and inflation remains subdued," said David Song, currency analyst at DailyFX in New York.
"In turn, the ECB may use a combination of policy tools to combat the threat for deflation and euro/dollar may take a further hit from the next FOMC meeting amid talks of a December taper," he said.
Minutes from the last Federal Open Market Committee meeting in October showed U.S. policymakers felt there was room to begin scaling back the Fed's $85 billion monthly bond purchase program at one of their next few meetings if warranted by economic conditions.
Many market participants expect the Fed to start reducing its bond purchases in March 2014.
Against the Japanese yen, the dollar rose to 101.15 yen, its highest since July 10. It was last up 1.1 percent at 101.08 yen.
The yen came under strong selling pressure as market players expected Japan's monetary policy to stay ultra-loose for some time.
"With U.S. monetary policy officials moving toward tightening while the (Bank of Japan) is fully committed to an expansionist policy, dollar/yen may be finally ready to resume its rally and if it can clear the resistance at 101.50 it may target the yearly highs over the next several weeks," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
The dollar showed little reaction to a mixed bag of U.S. data. Jobless claims fell in the latest week, while a Mid-Atlantic business survey from the Philadelphia Fed showed its lowest reading since May.
Speaking in Berlin, Draghi said the possibility of negative deposit rates was discussed at the ECB's last policy meeting and there had been no news since then. He also said the central bank did 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 earlier one-week low of $1.3398.
Draghi's comments were interpreted as differing from an unsourced report on Wednesday which said the ECB may consider making banks pay to deposit cash with it overnight and caused the euro to fall. An ECB spokeswoman declined to comment.
Much has been made about the contrast in the monetary policy stances of the ECB and the Fed, but Jane Foley, senior currency strategist at Rabobank in London, said that "until Fed tapering is upon us, euro/dollar will remain well supported in spite of the dovish threats of the ECB."
The euro rose 1.2 percent against the yen to 135.94 yen, after earlier hitting a four-year peak of 136.04 yen.
Earlier, weak French business activity data was offset by better-than-expected German business activity, although a soft reading for the euro zone as a whole continued to point to a fragile economic recovery.
Sterling hit a four-year high of 163.23 yen and was last changing hands up 1.3 percent at 163.14 yen.
Elsewhere, the Australian dollar fell sharply after Reserve Bank 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 1.2 percent, according to Reuters data.