By Tom Westbrook

SINGAPORE (Reuters) - The yen was pinned to a six-year low on the dollar on Thursday, as a U.S. rate hike and hawkish outlook underscored just how far the Bank of Japan is likely to lag worldwide policy tightening, while stellar jobs data lifted the Australian dollar.

Increasing the target federal funds rate by a quarter-percentage point, the U.S. Federal Reserve raised rates for the first time since 2018. Its policymakers' projections for as many as six more hikes this year were even more aggressive than expected.

Bank of Japan Governor Haruhiko Kuroda, by contrast, on Thursday played down the chance of inflation reaching a 2% target and made his case for keeping monetary policy ultra-easy.

The yen hit 119.13 per dollar overnight, its lowest since early 2016, and was last at 118.75. It dropped 1.6% against the Aussie on Wednesday and slid further on Thursday to a four-year low of 87.05 yen per Aussie.

The euro, which caught a boost from hopes for a breakthrough in peace talks between Ukraine and Russia, surged more than 1% on the yen overnight and more than 0.7% on the dollar to stand at $1.1033 in the Asian afternoon.

"The market is expecting the Fed to ramp interest rates higher during the course of this year. By contrast the BoJ is committed to extremely accommodation policy settings," said Jane Foley, senior FX strategist at Rabobank in London.

"Interest rate differentials and Japan's position as a commodity importer suggest the possibility of further upside potential for USD/JPY this year."

The Bank of Japan concludes a two-day meeting on Friday and is not expected to unwind accommodative settings.

The gap between benchmark 10-year Treasury yields and 10-year Japanese bond yields hit its widest in nearly 2-1/2 years overnight at 1.99%. [US/][JP/]

BANK OF ENGLAND EXPECTED TO HIKE

Sterling hovered at $1.3158, as dealers waited for 1200 GMT, when the Bank of England is expected to raise interest rates for a third straight meeting. The market's focus will be on any new thinking from policymakers about juggling the competing pressures of inflation and slowing growth.

Elsewhere, talk of compromise from both Moscow and Kyiv on a status for Ukraine outside of NATO has lifted hopes for negotiated end to fighting and put a bit of downward pressure on the dollar more broadly.

Ukrainian President Volodymyr Zelenskiy said negotiations were becoming "more realistic" and Russia said proposals under discussion were "close to an agreement."

The U.S. dollar index fell 0.5% overnight and edged a further 0.1% lower to 98.378 in early Asia trade.

The Australian dollar jumped through its 200-day moving average to $0.7314 after better-than-expected employment data, as markets narrowed the odds on a rate rise from the Reserve Bank of Australia by June, if not even sooner. [AUD/]

Australian unemployment is down to lows not seen since 2008.

"The Aussie is like a balloon being held underwater," said Tony Sycamore, senior market analyst at City Index in Sydney.

"Terms of trade are at record highs and commodity prices, even though they've pulled back significantly, are still elevated and that bodes very well for the Aussie dollar."

The kiwi was weighed a little bit and was flat at $0.6842 after softer-than-expected growth data.

New Zealand's annual GDP rose 3.1% last year, a little below a Reuters poll forecast of a 3.3% rise.

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Currency bid prices at 0506 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.1031 $1.1037 -0.04% +0.00% +1.1052 +1.1008

Dollar/Yen

118.7650 118.6200 +0.11% +0.00% +119.0150 +118.6250

Euro/Yen

131.03 131.01 +0.02% +0.00% +131.4600 +130.8700

Dollar/Swiss

0.9399 0.9407 -0.10% +0.00% +0.9429 +0.9398

Sterling/Dollar

1.3156 1.3146 +0.07% +0.00% +1.3163 +1.3129

Dollar/Canadian

1.2678 1.2675 +0.01% +0.00% +1.2698 +1.2670

Aussie/Dollar

0.7315 0.7290 +0.39% +0.00% +0.7320 +0.7283

NZ

Dollar/Dollar 0.6842 0.6842 +0.01% +0.00% +0.6850 +0.6829

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ