NEW YORK, Dec 26: The US dollar rose versus the yen on Friday as data showing a sharp slowdown in Japanese inflation underscored fears the world’s second-largest economy could sink back into deflation next year.

The yen dipped against the euro in Asian trading as Friday was the last business day for many Japanese firms this year and their offices will remain shut until January 5, 2009.

The euro also advanced against the US currency.

Volume was lighter than usual with most Asian and European markets closed. Trading resumed in the United States after markets were shut on Thursday for the Christmas holiday.

Low volume ahead of the year end left most major currency pairs confined to narrow ranges, analysts said.“The foreign exchange market is quiet, with the dollar sporting a softer profile, but range trading continues to be the dominant story,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.

In midday trading in New York, the dollar was 0.3 per cent higher at 90.61 yen after earlier trading as high as 90.83. The greenback was on track for its first weekly rise against the yen since the week to Nov. 9, when it rose about 0.5pc. Japan’s annual core consumer inflation slowed to 1.0pc in Nov from 1.9pc in Oct, government data showed on Friday.

In a sign of more trouble for an economy already in recession, Japan’s industrial output plunged a record 8.1 per cent in November, while the ratio of jobs available to job seekers fell to a nearly five-year low.—Reuters