FOREX-Dollar hits one-month high vs yen on Fed rate hike bets

* Dlr/yen rises as investors reverse bets against dlr

* Upbeat US consumer confidence data helps lift dollar

* US ADP employment report, Chicago PMI awaited

By Jemima Kelly

LONDON, Aug 31 The dollar hit a one-month high against the yen on Wednesday as investors reversed bets made against the greenback on speculation that the U.S. Federal Reserve would not hike interest rates anytime soon.

The U.S. currency has gained almost 3 percent versus the yen since Friday, when Fed Chair Janet Yellen and Vice Chair Stanley Fischer kept open the possibility of a 2016 rate hike, perhaps as soon as September, at a meeting of central bankers in Jackson Hole, Wyoming.

Markets are pricing in an around 1 in 4 chance of a September rate increase, compared to a 1 in 5 chance before the Jackson Hole meeting. They are also pricing in a 55 percent chance of a hike by year-end.

Dogged by rate hike uncertainty, the dollar had dropped to as low as 99.550 yen earlier in the month. On Wednesday it gained a third of a percent on the day to trade at 103.30 yen, its strongest since July 29.

Data released on Friday showed speculators had pared favorable bets on the dollar to their lowest in seven weeks in the week up to Aug. 23, before Jackson Hole, while raising net long positions on the yen to their highest since early July.

"Heading into Jackson Hole, the market was very short dollars..in contrast with the yen, where the market was net long," said BNP Paribas currency strategist Sam Lynton-Brown, from London. "That's very consistent with the price action that we're seeing: that dollar/yen is the dollar pair that is exhibiting the greatest sensitivity to Jackson Hole."

Against a basket of major currencies, the dollar was flat at 96.066, having risen around 1.5 percent since Friday.

Upbeat data released on Tuesday helped the dollar extend gains, with a consumer confidence index rising to an 11-month high in August. Other data showed that U.S. house price growth moderated in June but was still strong.

Yen bulls were also kept in check after Japan's Chief Cabinet Secretary Yoshihide Suga told Reuters on Tuesday that the government will respond "appropriately" to unwelcome yen gains.

"Despite much previous excitement over the yen's potential strength, it failed to convincingly crack the 100 yen (per dollar) mark. This, combined with the latest Fed rate hike views, is prompting participants to square some of their yen longs," said Masashi Murata, senior forex strategist at Brown Brothers Harriman in Tokyo.

Attention has now switched to Friday's U.S. August non-farm payrolls report, which should provide a chance to assess whether the U.S. economy is robust enough to withstand monetary tightening.

But investors will first digest the ADP employment data and the Chicago purchasing managers' index (PMI) due later on Wednesday.

For Reuters new Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Reporting by Jemima Kelly; Editing by Raissa Kasolowsky)