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* Dollar index on track for weekly losses
* Yen gains despite this week’s dovish BOJ
* Hawkish BoE hints give sterling a lift
TOKYO, March 17 (Reuters) - The dollar licked its wounds in Asian trading on Friday, wallowing at five-week lows against a currency basket and on track for weekly losses after the U.S. Federal Reserve signalled fewer interest rate hikes than some investors had expected.
Although the U.S. central bank delivered an interest rate increase on Wednesday as widely anticipated, it did not alter its earlier forecast for a total of three rate increases this year.
That disappointed dollar bulls who had hoped for hints of a possible fourth hike in 2017.
The dollar index, which gauges the greenback against a basket of six major rivals, edged down 0.1 percent to 100.26, after earlier coming within a tick of the overnight low of 100.21, its lowest level since Feb. 9. It was down 1 percent for the week.
Against the yen, the dollar edged up 0.1 percent to 113.44 , down 1.2 percent for the week ahead of a Tokyo public holiday on Monday.
The yen gained despite sharply diverging monetary policy expectations. On Thursday, the Bank of Japan held its policy steady as expected and maintained a pledge to cap long-term interest rates around zero.
BOJ Governor Haruhiko Kuroda said an uptick in inflation toward 1 percent won’t immediately trigger an interest rate hike, signalling that Japan will stick to its ultra-easy policy even as other major economies eye withdrawing stimulus.
Kuroda, who heads to Germany for a Group of 20 finance leaders’ meeting this weekend, shrugged off market speculation the BOJ may raise its target on bond yields later this year, when consumer inflation is expected to approach 1 percent due mostly to a rebound in fuel costs and rising import prices from a weak yen.
“The Fed is going to continue to hike rates, so we don’t see any reason to aggressively buy the yen more,” said Masashi Murata, senior strategist at Brown Brothers Harriman in Tokyo.
U.S. data on Thursday underscored the U.S. economy’s solid underpinnings. Homebuilding increased 3.0 percent last month and jobless claims fell in the latest week.
The yen could face pressure from a domestic scandal involving a land deal that is chipping away at the government’s support ratings. Japanese Prime Minister Shinzo Abe has so far denied firsthand involvement.
“Some market participants may worry about Abe’s scandal.... Currently, we just have rumours, and are waiting to see what happens,” Murata said. “The risk that it could eventually lead Abe to resign seems quite small, but is not zero.”
The main theme of the G20 meeting is likely to be the degree of consensus against protectionism that all member countries will be able to agree on.
Some discussion of currencies is also possible, and investors will be watching specifically for any hints about Washington’s attitude to the strong dollar, which it blames for its stubborn trade deficit and manufacturing decline.
The recently resurgent euro edged up slightly to $1.0770 , up 0.9 percent for a week in which Dutch centre-right Prime Minister Mark Rutte fended off an election challenge from anti-Islam politician Geert Wilders. Concerns about the election outcome had pressured the single currency.
The European Central Bank will decide at a later time whether to raise interest rates before or after ending its bond purchase programme, ECB policymaker Ewald Nowotny told a newspaper on Thursday.
“The European economy seems to be coming back, so unless there’s any shock from the financial side or the political side, the ECB is gradually going to normalize its policy,” said Harumi Taguchi, principal economist at IHS Markit in Tokyo.
Sterling edged down slightly to $1.2355 after hitting a two-week high of $1.2373 overnight, after the Bank of England kept rates on hold but gave a handful of hints in voting results and its minutes that it might raise them soon.
The pound was up 1.5 percent for the week, after outgoing BoE policymaker Kristin Forbes unexpectedly voted for a rise in interest rates, and others signalled it would not take much for them to follow suit.
Reporting by Tokyo markets team; Editing by Randy Fabi and Kim Coghill