LONDONSINGAPORE, May 16 Reuters The Japanese yen rallied for a second day on Thursday after data on Wednesday showed a slowdown in U.S. inflation, while the dollar found a footing against other currencies following a sharp drop the previous day.

U.S. inflation slowed to 0.3 in April from a month earlier, down from 0.4 in March and below expectations for another 0.4 reading, Wednesday39;s data showed.

Yearonyear core inflation which strips out volatile food and energy prices fell to its lowest in three years at 3.6. Meanwhile, retail sales were flat, suggesting conditions for Federal Reserve interest rate cuts are falling into place.

The dollar dropped 1 against the yen on Wednesday after the data and was down a further 0.38 on Thursday at 154.32, having fallen as low as 153.6 before weak Japanese growth figures took some of the shine off the yen.

The Japanese currency has fallen around 9.5 this year as the Bank of Japan has kept monetary policy loose while higher Fed interest rates have drawn money towards U.S. bonds and the dollar. The yen has been particularly sensitive to any widening or closing of the interest rate differential.

The dollar index , which tracks the currency against six major peers, was last up 0.11 at 104.32 on Thursday after falling 0.75 on Wednesday as investors raise their bets on Fed rate cuts, now envisaging two reductions by the end of the year.

Some analysts said Fed officials will want to see proof of inflation39;s downward path before…