Euro firm on hawkish ECB, trims gains on MOF remarks

The euro hit one-week highs versus the yen on Thursday after hawkish comments from European Central Bank policymakers cemented expectations of two more euro zone interest rate increases this year.The single currency briefly trimmed gains after Japanese Vice Finance Minister Hideto Fujii said recent movements in the euro/yen exchange rate had been "a bit rough".European Central Bank Governing Council member Axel Weber said in remarks published on Wednesday that falling oil prices do not give the all-clear on inflation risks in the 12-nation bloc, and further rate rises from the current 3.0 percent are still needed.Another Council member, Nicholas Garganas, said further interest rate increases are needed if the euro zone economy continues growing at full tilt, with inflation above 2 percent."Both are singing from the same hymn sheet. It's not sensible for rates to remain on hold purely because of the recent decrease in oil prices," said Adrian Hughes, currency strategist at Societe Generale."Central bankers are not worried about inflation today, but the future inflation profile. We see softer-than-expected CPI data but as M3 showed there are still loose credit conditions."The euro hit a one-week high of 149.76 yen before trimming gains to 149.41 by 1140 GMT, up 0.15 percent on the day. It was up 0.15 percent at $1.2717 . The dollar was steady at 117.50 yen .The oil price has fallen around 20 percent since early August, and this is expected to take this month's euro zone inflation below the ECB's 2 percent target ceiling for the first time since January 2005. The data is due on Friday.ECB Executive Board member Jose Manuel Gonzalez-Paramo speaks at 1500 GMT in London.M3 data on Wednesday showed lending to business in August matched record peaks and money supply also rose unexpectedly, bolstering the case for further interest rate rises.MOF COMMENTSBefore Fujii's comments, Japan Finance Minister Koji Omi said on Wednesday he saw no need to comment or act on movements in the euro/yen rate at present."There is no real contradiction here -- the MOF is likely to recognise the monetary policy dynamic driving euro/yen higher and while it may wish to avoid giving the market an outright green light (to) buy euro/yen, it recognises there is little it can do to reverse the direction," JP Morgan said in a note to clients.Investors are awaiting core Japanese consumer prices and industrial production for August on Friday, which will be a prelude to the Bank of Japan's tankan survey of business sentiment on Monday.Dealers said that a soft reading in core prices and the tankan could further confirm market expectations that rates may remain at 0.25 percent until the end of the calendar year.FED RATE CLUESFrom the United States, final second quarter growth data, due at 1230 GMT, is seen being confirmed at an annualised 2.9 percent.Investors are looking to U.S. data to gauge whether the Federal Reserve's next move will be to cut interest rates. So far, releases have been mixed, with a stronger-than-forecast consumer confidence reading for September on Tuesday and an unexpected fall in durable goods orders in August on Wednesday.Friday sees the release of core Personal Consumption Expenditure for August, the Fed's favoured measure of inflation.The U.S. central bank kept rates unchanged at 5.25 percent last week for the second month in a row, after ending a two-year rate-tightening campaign in June.