Reuters) -The dollar held steady against most major currencies on Friday ahead of U.S. employment figures that could confirm rates are likely to stay higher for longer, but fell sharply against the yen, which got a lift from Japanese wage data.

The U.S. nonfarm payrolls report is due later on. Expectations are for the U.S. economy to have created 225,000 jobs in June.

The release follows data on Thursday that showed private payrolls surged last month, while the number of Americans filing new claims for unemployment benefits increased only moderately last week, suggesting the jobs market is on solid ground.

That pushed short-dated Treasury yields to their highest since 2007, reflecting the view that the Federal Reserve is likely to keep raising rates to tame inflation.

By Friday, the dollar index clung to its recent trading range, as most currencies held steady, bar the yen, which headed for its biggest one-day rise against the dollar in a month.

Data from the Japanese labour ministry showed regular wages posted their largest annual increase in May since early 1995, reinforcing the view among investors that the Bank of Japan (BOJ) will have to modify its ultra-loose monetary policy sooner rather than later.

“The stronger wage negotiations are starting to feed through, which is what the BOJ wants. They’ve said very clearly that if they see evidence of more sustained, stronger wage growth that could give them more confidence that they can beat their inflation target and then look obviously to moving away from loose policy settings,” MUFG strategist Lee Hardman said.

The dollar was last down 0.7% against the yen at 143.04, having fallen by nearly 0.9% this week, marking its biggest weekly fall against the Japanese currency in two months.

Adding a tailwind to the rally in the yen was some position-squaring among speculators, who have built up fairly sizeable bearish positions, MUFG’s Hardman said.

YEN BEARS, BEWARE

Weekly data from the U.S. regulator shows speculators hold a short position in the yen worth $9.793 billion, the largest since May 2022, having almost doubled in size in the last three months alone.

The yen has held just below the 145 level – which prompted the BOJ’s first intervention in decades last autumn – for about two weeks and authorities have made clear they are concerned about the weakness in the currency.

The euro fell 0.9% against the yen to 155.5 and was down 0.1% against the dollar at $1.0876.

Sterling was flat at $1.2746, having touched a two-week high of $1.2780 on Thursday, as markets bet the Bank of England would raise interest rates to 6.5% early next year, up from a previous expected peak of 6.25%.

The dollar drew extra support from a rise in two-year Treasury yields, which are the most sensitive to changes in interest rate expectations. The two-year Treasury yield rose above 5% on Friday, nearing the previous day’s 16-year high of 5.12%.

“The bond market, at least, is still concerned about the impact of restrictive monetary policy in the U.S. on the economy, and in fact, we still expect the U.S. economy to enter a recession later this year,” Carol Kong, a currency strategist at Commonwealth Bank of Australia (OTC:CMWAY), said.

The Australian dollar rose 0.2% to $0.6638, but was still heading for a third straight weekly loss, having been battered by weak Chinese economic data and broad risk aversion in the previous sessions, while the offshore yuan rose, leaving the dollar 0.2% lower on the day at 7.2434.