TOKYO, April 30 (Reuters) - The yen held its line

against the dollar on Tuesday after making sharp gains the

previous day in moves that traders said were sparked by

suspected intervention by Japanese authorities.

The Japanese currency was trading a touch lower

0.16% at 156.56 per dollar, but was well off its 34-year low of

160.245 hit on Monday when traders say yen-buying intervention

by Tokyo drove a sizeable rebound of nearly six yen.

Japanese authorities haven't confirmed that they had stepped

into the currency market in support of the yen, but markets

remain on heightened intervention alert ahead of the Federal

Reserve's monetary policy review this week.

Japan's top currency diplomat Masato Kanda said on Tuesday

that authorities were ready to deal with foreign exchange

matters "24 hours", but declined again to comment on whether the

finance ministry had intervened.

"There is clearly a possibility that the sharp and sudden

lifts in the JPY were sparked by intervention. But the reality

is no one knows for sure if the MOF did step into the FX markets

yesterday," said Carol Kong, a currency strategist at the

Commonwealth Bank of Australia.

Trading in Asia was thinner than normal on Monday due to

Japan's Golden Week holiday as the yen saw its biggest one-day

gain this year on the dollar. Official figures that would reveal

whether intervention did in fact occur won't be available until

late May.

Markets in Japan will be closed again on Friday for the

holiday.

The Japanese currency still sits lower than it was before

the Bank of Japan's policy announcement last week.

That could bode ill for the yen as the Fed begins its

two-day monetary policy meeting on Tuesday, where it's expected

to holds rates at 5.25%-5.5%, with U.S. inflation proving to be

sticky.

The Fed is expected to strike a hawkish message, meaning

more yen selling is likely, CBA's Kong said.

"The implication is the MOF will likely be forced to step in

more than once to slow the rise in USD/JPY."

The BOJ's go-slow approach on interest rate increases,

following its landmark decision to ditch negative rates in

March, has traders betting that Japanese bond yields will remain

low for an extended period. In contrast, U.S. rates are still

relatively high and provide enough latitude for yen bears.

A fragile economic recovery is also likely to constrain

BOJ's options as any over-tightening in policy could tip Japan

into recession.

Data showed Japan's factory output rose at a better than

expected 3.8% pace in March from the previous month, though

retail sales for the same month undershot market forecasts.

The dollar consolidated around 105.73 against a basket of

currencies ahead of the Fed's meeting, after slipping

0.25% in the previous session.

Traders have continued to pare back bets of Fed rate cuts

this year amid the hotter-than-expected U.S. economic data and

stubborn inflation numbers.

A rate cut in September was looking like a close call at

just 44%, according to CME Group's FedWatch tool.

However, other major central banks such as the European

Central Bank (ECB) and the Bank of England may begin to cut

rates in the near future.

Markets could glean more clues on the timing of ECB's

rate-easing cycle from European inflation data this week due

later on Tuesday.

The euro was down 0.05% at $1.0714. Sterling

was last trading at $1.2558, little changed on the day.

In cryptocurrencies, bitcoin last rose 1.74% to

$64,039.00.