LONDONSINGAPORE, Jan 17 Reuters Sterling edged up on Tuesday after data showed the pace of pay growth in Britain, closely watched by the Bank of England as it gauges how much higher to raise interest rates, accelerated again.

The yen was perched near sevenmonth highs as investors held their breath for a potential policy shift at the Bank of Japan BOJ.

The pound rose 0.2 to 1.2218 after data showed wage growth picked up more pace in the three months to November, while employment rose by a fasterthanexpected 27,000.

The official data showing employment conditions have held up better than expected should be taken with a pinch of salt, said Simon Harvey, Head of FX Analysis at Monex Europe.

The BoE is unlikely to count its chickens before theyve hatched.

BoE Governor Andrew Bailey said on Monday that a shortage of workers in the labour market posed a major risk to forecasts that inflation will fall from its current levels above 10.

FX strategists at ING and Monex Europe said it is too early to dismiss the risk of another 50 basis point interest rate increase in February as the BoE is set to hike rates for the 10th consecutive time.

EYES ON BOJ

The yen steadied around 128.72, down 0.17 against the U.S. dollar after hitting a late May high of 127.22 per dollar on Monday. Options trade shows a market braced for sharp moves when the BOJ concludes a twoday meeting on Wednesday, with overnight implied volatility surging to a sixyear high.

Speculation is building about a…