By Rocky Swift and Lucy Raitano TOKYO/LONDON (Reuters) -The dollar headed for its worst weekly performance since late July on Friday as the U.S. government shutdown increased uncertainty, while the yen pulled back from this week's highs as traders mulled the Bank of Japan's next move ahead of a ruling party leadership election this weekend. The dollar index, which measures the greenback against a basket of key currencies, fell 0.1% to 97.78. The euro was up 0.2% at $1.17355. Sterling firmed 0.2% to $1.346. "We've got the government shut down in the U.S. which has no real practical impact…but for market participants it means we're not getting any of the data releases we would usually get like the non-farm payrolls data today," said Michael Brown, senior research strategist at Pepperstone. "I think that's why we're seeing things trade in such listless fashion." Though ISM data is due out of the U.S. later, Brown said he does not expect it to move the needle for markets. The yen slid 0.1% to 147.375 per dollar having earlier fallen as much as 0.4%. But it remained on track for a 1.4% advance this week that would be the biggest since mid-May. The weakness came after BOJ Governor Kazuo Ueda struck a cautious tone in comments about the global economy, lowering expectations of an imminent rate hike. Markets are also focused on a Liberal Democratic Party election on Saturday that will determine Japan's next prime minister. "Market participants are a little bit disappointed potentially… he (Ueda) didn't really lean into the idea of a October rate hike as much as some of his colleagues have done in recent sessions, that's why we've seen a little bit of pressure on the yen," said Brown. Markets were keeping a close eye on speeches by BOJ officials this week after the central bank's tankan survey on Wednesday showed confidence among big manufacturers improved for the second straight quarter. Deputy governor Shinichi Uchida said on Thursday that the business mood is improving and corporate profits remain high even as U.S. tariffs weigh on exports. But in a speech on Friday, Governor Ueda put the focus back on how global factors, particularly the health of the U.S. economy, could impact the trajectory of wages and prices in Japan. Goldman Sachs economists said in a note that Ueda's speech "supports our view that the possibility of an October rate hike is very low." Japan's market is also girding for an election on Saturday that has consequences for its budget and central bank policies. Among the front-runners, dovish party veteran Sanae Takaichi could trigger more bond market uncertainty, while farm minister Shinjiro Koizumi and top government spokesperson Yoshimasa Hayashi are less likely to rock the boat. In the U.S. overnight, a Chicago Fed report that combines private and available public data estimated the September jobless rate was 4.3%, the same as in August and evidence that a feared rapid rise in unemployment had not yet begun. But details of the report, along with other data, pointed to sluggishness in the labor market. The ADP National Employment report on Wednesday showed private payrolls decreased by 32,000 in September, boosting expectations that the Federal Reserve will cut interest rates two more times this year. Traders see a 25-basis-point cut at the Fed's October meeting as almost certain and are pricing in an 89% probability of an additional cut in December, according to the CME Group’s FedWatch Tool. Dallas Fed President Lorie Logan on Thursday said the central bank appropriately cut rates last month to guard against the risk of a sharp deterioration in the job market, but said that so far the cooling has been gradual and signalled she is not eager to cut rates further. Elsewhere, a few Fed, ECB, Bank of England central bankers are due to speak at the farewell symposium of the Dutch central bank governor Klaas Knot including ECB President Christine Lagarde and BoE's Andrew Bailey. (Reporting by Rocky Swift in Tokyo and Lucy Raitano in LondonEditing by Shri Navaratnam and Toby Chopra)
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