FOREX-Yen hits 18-month high vs dollar as Japan seen in policy bind

* Dollar touches 106.14 yen, lowest in 18 months

* Japanese officials reported to be frustrated with yen's strength

* Euro/dollar hits 6-1/2-month high

By Patrick Graham

LONDON, May 2 (Reuters) - The yen touched a fresh 18-month high against the greenback early on Monday after its biggest weekly gain in more than seven years, as traders bet that Tokyo policymakers have limited capacity to stem the yen's gains.

The dollar touched a new low of 106.14 yen at the start of Asian trade and steadied only marginally by the start of a European session thinned out by a holiday in London.

Finance Minister Taro Aso was quoted in Japanese media over the weekend as viewing the yen's strength as "extremely concerning". But after the Bank of Japan did not deliver on reports it would launch a new programme of stimulus last week, traders and analysts said the bias for the yen continued to be upward.

"Its curious that we're now seeing verbal intervention again," said Thu Lan Nguyen, a strategist with Commerzbank (Xetra: CBK100 - news) in Frankfurt. "One can only imagine that they did not want a stronger yen but the authorities there caused it by taking no action last week."

She (Munich: SOQ.MU - news) said she saw "quite a lot of risk" of the Japanese currency heading towards 100 yen per dollar. It (Other OTC: ITGL - news) traded 0.1 percent stronger on the day at 106.38 per dollar by 0712 GMT.

Japan and its currency are still global investors' chief safe haven of choice at times of financial stress and the yen's rise is some measure of the scale of concern now over global growth and finances.

Last week's nearly 5 percent gain for the yen was its biggest since the 2008 crisis and pushed "long" bets on more yen gains to the highest on record.

Others say those bets will take a beating in the months ahead if the BOJ's lack of action last week was just the calm before another round of money-printing to get Japanese investment and inflation moving.

"Dollar-yen looks like a lemming hurling itself off a cliff, and the yen bulls may end up feeling a bit like lemmings in due course," Societe Generale (Swiss: 519928.SW - news) strategist Kit Juckes wrote in a note to clients. "Recession, capital outflows and long speculative positions, yet still the yen rallies towards USD/JPY 100."

Purchasing manager surveys on Monday offer more food for thought on the struggle for the more substantial growth that would allow interest rates to rise and a number of major emerging and developing economies to dig themselves out of debt.

China's numbers were softer than forecast, showing factory activity expanding but only marginally in April.

The week's big set-piece is U.S (Other OTC: UBGXF - news) . non-farm payrolls on Friday, potentially limiting stronger bets on the dollar over the next few days. The dollar index was 0.1 percent lower in early trade in Europe. The euro was trading steady at $1.1460 having touched a fresh 6-1/2-month high of $1.14815 in Asian time. (Additional reporting by Ian Chua in SYDNEY and Hideyuki Sano in TOKYO)