(Updated at 0930 EDT)

By Karen Brettell

NEW YORK, July 31 (Reuters) - The Japanese yen hit a

four-month high against the dollar on Wednesday after the Bank

of Japan raised rates to the highest since 2008 and indicated

that more hikes may follow, while the dollar was broadly weaker

before the Federal Reserve's meeting statement.

The BOJ raised the overnight call rate target to 0.25% from

0-0.1%, the largest increase since 2007.

"A lot of market participants were preparing for this as if

it was a possibility, but very few actually expected the BOJ to

raise more than 10 basis points," said Helen Given, FX trader at

Monex USA in Washington.

"This upside surprise is giving yen a huge boost, especially

because people think that the Fed might start telegraphing this

afternoon for a cut in September," Given said.

Japan's rate increase came just months after the BOJ ended

eight years of negative interest rates as the bank's chief seeks

to dismantle his predecessor's unorthodox policies.

The Japanese central bank also announced plans to halve its

monthly Japanese government bond (JGB) purchases to 3 trillion

yen as of January-March 2026.

The yen has rallied since hitting a 38-year low of 161.96

against the greenback on July 3, in large part boosted by

interventions by Japanese authorities. Traders unwinding short

bets on the yen has added to the move.

Japanese authorities spent 5.53 trillion yen ($36.8 billion)

intervening in the foreign exchange market this month to boost

the currency, official data showed on Wednesday.

The dollar was last down 1.68% at 150.2 yen and

got as low as 149.79, the lowest since March 19. It is on track

to post a monthly loss of 6.7% against the Japanese currency,

the largest since November 2022.

The Fed is expected to keep interest rates unchanged at the

conclusion of its two-day meeting later on Wednesday. Analysts

and traders will be looking for new hints that cuts are likely

to begin in September as inflation eases and the labor market

softens.

The dollar fell 0.46% to 103.9 against a basket of

currencies and is on track for a monthly loss of 1.3%.

Traders are fully pricing in a September rate cut and a

second and possible third cut by year-end.

The next major U.S. economic release that is likely to drive

Fed policy will be Friday's government jobs report for July. It

is expected to show that employers added 175,000 jobs during the

month, according to the median estimate of economists polled by

Reuters.

The ADP National Employment Report on Wednesday showed that

private payrolls rose by 122,000 jobs this month, below

economists' expectations for 150,000 in jobs gains.

The Australian dollar fell to a three-month low of

$0.6480 and was last down 0.12% at $0.6529. following a softer

reading on core inflation.

Markets abandoned bets of a further rate hike from the

Reserve Bank of Australia after the data.

The euro gained 0.28% to $1.0845 and is set for a

roughly 1% gain in July.

Euro zone inflation unexpectedly edged up in July, data

showed on Wednesday, although a widely watched gauge of price

growth in the services sector eased.

The pound was up 0.12% at $1.285 and is heading for

a monthly gain of 1.6%.

Sterling options volatility rose to its highest in almost a

year, reflecting the degree of nervousness ahead of Thursday's

Bank of England rate decision where markets are pricing in 65%

odds of a rate cut.

In cryptocurrencies, bitcoin rose 0.41% to $66,443.