Hayami's comments, rebuffing government opposition to any monetary tightening and backed by fresh data showing a surprise jump in capital spending, were seen as a strong step toward an end to the bank's 18-month-old zero-rate policy at its board meeting on Friday, traders said.

The euro's broad-based weakness in the face of soft German employment data also spurred yen buying against the single European currency, they added.

"If we take Hayami's comments at face value, you've got to say the chances of an interest rate rise this week are a little bit higher than they were," the economist at HSBC Markets in London Adam Cole said."I still think September would be my favourite month (for a rate move)...but in the sense that they do point to higher rates in the fairly near term, they're generally yen positive."

The yen rose nearly one per cent from one-week troughs tested earlier toward 108.30 per dollar. Against the euro, it advanced beyond 98 for a gain of more than one per cent on the day.

In defiance of opposition to an imminent rate move from a number of government officials and businessmen, Hayami said monetary policy was decided by the BOJ's policy board alone.

"We are the ones to make decisions," Hayami told reporters after appearing in parliament. He said that if the BOJ were to raise rates, it would do so by a quarter percentage point, rather than by half that amount in a political compromise. He also said deputy governor Yutaka Yamaguchi - thought by the market to be on a more dovish side - had exactly the same view as himself on monetary policy. Furthermore, the governor said, in response to a question about adopting a weak yen policy, that such a currency policy could not be acceptable given its impact on Asian economies and Japan's current account surplus.

Conveniently for Hayami, Japan's June machinery orders rose by a whopping 14.4 per cent from a month earlier, adding to the argument for a shift away from an ultra loose monetary policy. "His comments in conjuction with strong machinery orders are what has given the yen a little bit of a boost today," said Jane Foley, currency strategist at Barclays Capital in London.By contrast, the beleaguered euro took a blow from a smaller-than-expected fall in German jobless numbers, which came fresh on the heels of soft industrial output data a day earlier.

-- (Reuters)