The U.S. dollar struggled for direction on Friday as fears of an economic slowdown dented risk sentiment, while the yen slipped as speculation continue to swirl that the Bank of Japan will eventually move away from its ultra-easy policy.

The dollar index, which measures the U.S. currency against six peers, rose 0.069% to 102.090, not far off the seven-month low of 101.51 it touched on Wednesday.

The index is down 1.3% so far this year after sinking 7.7% in the last three months of 2022 as investors bet that the Federal Reserve will slow the pace of its interest rate hikes.

The Japanese yen weakened 0.32% versus the dollar to stand at 128.86.

Data on Friday showed Japan's core consumer prices in December rose 4.0% from a year earlier, double the central bank's 2% target, with the latest figure likely to fuel market expectations that the Bank of Japan (BOJ) will soon end its yield control policy and allow interest rates to rise more.

"We now expect the BOJ to exit from yield curve control and negative interest rate policy by the end of June, conditional on a solid pick-up in Japan's wage growth," said Carol Kong, currency strategist at Commonwealth Bank of Australia.

The Asian currency has had a volatile week after the BOJ's decision on Wednesday to stand pat on its ultra-loose monetary policy.

With little economic data scheduled on Friday, Kong said currency market moves will hinge on overall risk sentiment, with major currencies likely to trade in narrow ranges.

A flurry of U.S. data on Thursday indicated the world's biggest economy was slowing down after multiple hefty interest rate hikes from the Federal Reserve as traders hope for a pause in tightening this year.

However, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, pointing to another month of solid job growth and continued labour market tightness.

Investor focus will switch to the upcoming Fed meeting at the start of next month. The central bank raised interest rates by 50 basis points in December after four straight 75 basis point hikes and the market is eagerly anticipating another stepdown.

ING economists said the intense scrutiny of the U.S. growth story means that the dollar remains vulnerable to data releases as markets keep scaling back Fed rate expectations.

"The fact that the ongoing dovish repricing is not only a consequence of slowing inflation but also of a worsening economic outlook in the United States has exacerbated the negative implications for the dollar," according to ING economists.

Meanwhile, the euro was up 0.11% to $1.0839, while sterling was last trading at $1.239, up 0.01% on the day. The Australian dollar rose 0.14% versus the U.S. currency to $0.692. The kiwi rose 0.19% to $0.640.

(Reporting by Ankur Banerjee in Singapore; Editing by Jacqueline Wong)