* Focus on BOJ's interest rate decision later on Friday
* Some media reports say BOJ likely to hold rates steady
* But market generally expects a rate cut
By Kaori Kaneko
TOKYO, Dec 19 (Reuters) - The dollar slipped against the yen on Friday, paring gains made the previous day, while investors braced for the Bank of Japan's interest rate decision due later in the day.
The dollar surged against the yen on Thursday as speculation mounted that Japan may intervene in the market to stem the Japanese currency's appreciation.
The U.S. currency dropped to its weakest level in over 13 years against the yen earlier this week following the unprecedented rate cut by the Federal Reserve, bringing U.S. interest rates below the BOJ's benchmark rate target.
The BOJ is expected to debate cutting interest rates from an already rock bottom 0.3 percent or taking further measures such as buying commercial paper to ease corporate credit strains.
But several Japanese media reported that the BOJ will keep rates steady, saying some within the bank want to examine the effect of its previous rate cut in October on the economy before lowering rates further.
"While there is some speculation about the BOJ keeping rates steady, the market in general is expecting a rate cut," said Masato Mori, senior manager at NTT Smarttrade.
"A BOJ rate cut with additional steps may slow down the yen's appreciation against the dollar but the general trend of dollar weakness is likely to continue," he said.
Mori also said if Japan's central bank leave rates on hold, the yen's appreciation against the dollar could accelerate, fuelling speculation of intervention.
The U.S. currency on Thursday posted its biggest rise against the yen in more than a month on heightened speculation the Japanese government may intervene to halt its currency's advance.
Jiji news agency and other Japanese media outlets reported there was a growing chance the BOJ would forgo a rate cut on Friday due to strong opposition within the bank to lowering rates further before examining the effect of October's rate cut.
Japanese Economics Minister Kaoru Yosano said on Friday that while the effect of any BOJ interest rate cut would be marginal, it would still send a message to the market.
There is a growing possibility that the BOJ will lower rates to 0.1 percent from the current 0.3 percent due to the dollar's weakness against the yen, Barclays Capital chief economist Kyohei Morita said in a research paper.
The dollar fell 0.4 percent to 89.03 yen from late U.S. trade on Thursday. The U.S. currency fell as low as 87.13 yen on trading platform EBS on Wednesday, the lowest since mid-1995.
The euro rose 0.4 percent to $1.4294 from the previous day when it surged as high as $1.4720 on EBS, a nearly three-month high.
Against the yen, the euro edged down 0.1 percent to 127.35 yen, after rising above 131.00 yen on Thursday, the highest about 1-½ months.
The European single currency was down 0.6 percent at 94.35 pence after hitting a fresh record high above 95.00 pence on EBS on Thursday.
The euro was buoyed by the view that euro zone interest rates will not fall as steeply as those in other major economies.
But traders also said the euro may lose some strength in the medium term as pressure for further rate cuts in the euro zone could grow, given the dismal outlook for the euro zone economy. (Reporting by Kaori Kaneko; Editing by Chris Gallagher)