Yen rises, dollar steady as traders assess tariff risk, policy outlook

• Yen hits two-month peak on dampened risk appetite, BOJ outlook
• Tariff talk casts shadow over markets
• China leaves benchmark lending rates unchanged

By Rae Wee

SINGAPORE, Feb 20 (Reuters) - The yen firmed and the U.S. dollar held steady on Thursday as investors pondered what U.S. President Donald Trump's latest tariff agenda would mean for the global economy and how it could affect the interest rate outlook for major central banks.

Geopolitics also loomed large after Trump referred to Ukrainian President Volodymyr Zelenskiy as a "dictator" amid talks to end the Russia-Ukraine war.

Currency movement was modest in cautious Asian trading save for the yen JPY=EBS, which rose to an over two-month top of 150.62 a dollar, helped by flight to safety over worries about the impact of Trump's tariffs as well as bets of more Bank of Japan hikes this year. 0#JPYIRPR

Sterling GBP=D3 retreated from a two-month top and last stood at $1.2594.

The euro EUR=EBS was flat at $1.0422, having fallen in the previous session as top policymakers at the European Central Bank took opposing views on inflation risk and on how much the bank is holding back economic growth.

Trump on Wednesday said he will announce tariffs related to imports of timber, cars, semiconductors and pharmaceuticals "over the next month or sooner". That echoed remarks a day earlier about imposing auto tariffs "in the neighbourhood of 25%" and similar duties on semiconductors and pharmaceuticals.

Separately, Trump also said he is going to work with Republicans in Congress to significantly reduce tax for individuals and companies.

While Trump's directives - particularly those regarding tariffs - have injected volatility and a sense of caution into markets, recent market moves in response have been more subdued as investors grow accustomed to his tactics.

"He's been in office for about a month now, initially we've seen big impacts of his announcements on tax policies on financial markets, and I think markets have adjusted to his style ... and also his transactional approach to policymaking," said currency strategist Carol Kong at Commonwealth Bank of Australia.

"He loves using tariffs as a negotiating tactic, so what he says may be different to what is actually imposed."

Against a basket of currencies, the dollar =USD hovered near a one-week top at 107.15.

Minutes of the Federal Open Market Committee's latest policy meeting released on Wednesday showed Trump's initial proposals raised concern among Federal Reserve officials about quickening inflation and reinforced their patient approach to rate cuts.

"The minutes of the January FOMC meeting emphasised the Committee's previously telegraphed beliefs over inflation and the labour market," said senior economist Mantas Vanagas at Westpac.

"Considerable uncertainty remains over the path of inflation given potential changes to U.S. trade and immigration policy."

The Australian dollar AUD=D3 last traded 0.07% higher at $0.6350 after a mixed jobs report which showed employment outpaced forecasts for a second successive month in January, yet the unemployment rate still ticked higher.

The New Zealand dollar NZD=D3 was flat at $0.5705.

Reserve Bank of New Zealand Governor Adrian Orr said on Thursday there would need to be an economic shock for the bank to cut its policy interest rate by 50 basis points again as it did at its latest meeting this week. 0#NZDIRPR

China on Thursday meanwhile left benchmark lending rates unchanged at a monthly fixing as widely expected, as authorities go slow with monetary stimulus as they prioritise financial and currency CNY=CFXS stability.

The offshore yuan CNH=D3 was last 0.1% higher at 7.2788 a dollar.