* Dollar/yen near 8-week high of 111.665 struck on Monday
* Limited reaction to possibility of Japan snap election (Updates prices, adds comments)
By Masayuki Kitano and Shinichi Saoshiro
SINGAPORE/TOKYO, Sept 19 (Reuters) - The dollar held steady at near 8-week highs versus the yen on Tuesday, with investors awaiting the Federal Reserve’s policy statement this week for fresh hints on the possible pace and timing of further U.S. monetary tightening.
The dollar last changed hands at 111.52 yen, trading within sight of Monday’s peak of 111.665 yen, its highest level since July 27.
The greenback has benefited from a recent surge in U.S. bond yields. The U.S. 10-year Treasury yield had reached a one-month high of 2.237 percent on Monday.
That marked a rise of 22 basis points from 10-month lows set on Sept. 8, when U.S. bond yields fell on risk aversion, partly stemming from concerns about U.S.-North Korea tensions.
In Asian trade on Tuesday, the U.S. 10-year Treasury yield slipped 1 basis point on the day to 2.218 percent.
Investors are now preparing for potentially more hawkish statements from the Federal Reserve after its two-day policy meeting ends on Wednesday, especially after the Bank of England surprised investors last week with talk of a possible rate hike.
The Fed is widely expected to announce this week that it will start paring its balance sheet, with the reductions seen likely to start this year.
It is expected to keep rates on hold, but investors will be watching for fresh hints on the chances of another rate rise this year and how many could be expected in 2018.
While the dollar might edge up towards 112 yen ahead of the Fed’s policy statement due on Wednesday, its recent rise against the yen looks a bit over-extended, said Peter Chia, FX strategist for United Overseas Bank in Singapore.
“I would think that with the geopolitical risks always in the background, that will probably temper the upside potential,” he said, referring to the near term outlook for the dollar versus the yen.
The yen showed little reaction to the possibility of Japanese Prime Minister Shinzo Abe calling a snap election for as early as October to take advantage of his improved approval ratings and disarray in the main opposition party.
“Foreign investors usually react instinctively to such themes and there hasn’t been a visible response in currencies thus far,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.
“The ruling Liberal Democratic Party (LDP) is enjoying a recovery in support and it is hard to imagine a major change taking place. This is likely leading to the lack of reaction or interest from foreign participants.”
The euro edged up 0.1 percent to $1.1968, on track for its fourth straight days of gains, albeit modest ones.
Sterling rose 0.2 percent to $1.3520.
The currency had soared to a 15-month high of $1.3618 on Monday on speculation that the BoE would raise interest rates soon for the first time in nearly a decade. But the pound’s rally was tempered after BoE Governor Mark Carney said any coming interest rate rises would be limited and gradual.
Reporting by Shinichi Saoshiro and Masayuki Kitano; Editing by Eric Meijer and Kim Coghill