FOREX-US dollar weakens vs yen as inflation moderates

* U.S. PCE index unchanged in May, up 2.6% year-on-year * Fed funds futures slightly lift rate cut chances in September * Dollar/yen up nearly 6% on the month * Euro on track for biggest monthly fall since January (Adds new comment, inflation details, bullets, byline, FX table; updates prices) By Gertrude Chavez-Dreyfuss NEW YORK, June 28 (Reuters) - The U.S. dollar fell against the yen on Friday after data showed inflation in the world's largest economy cooled down last month, cementing expectations that the Federal Reserve will start cutting interest rates this year. The greenback has been on a tear against the yen, underpinned by wide interest rate differentials between the United States and Japan. On the year, the dollar has surged 14%. Earlier in the session, the dollar hit a fresh 38-year high of 161.27 yen. But as inflation cooled, the dollar retreated on Friday, sliding 0.3% to 160.285 yen. Data showed the U.S. personal consumption expenditures (PCE) price index, the Fed's preferred inflation measure, was unchanged last month, and followed an unrevised 0.3% gain in April, data showed. In the 12 months through May, the PCE price index increased 2.6% after advancing 2.7% in April. "Markets will breathe the sigh of relief that the PCE didn't really surprise one way or the other," said Carol Schleif, chief investment officer, at BMO Family Office in Minneapolis. "It's still indicative of an economy that's coasting, hopefully to a more sustainable long-term pace, with inflation still bumping its way downward." Following the inflation data, fed funds futures slightly raised the chances of easing in September to around 67%, from about 65% late on Thursday, according to LSEG calculations. The market is also pricing between one to two rate cuts of 25 bps each this year. Dollar/yen has been the currency most sensitive to U.S. economic data because of its high, positive correlation with Treasury yields. The U.S. currency has posted monthly and quarterly gains versus the yen of 1.9% and 5.9%, respectively. In other currencies, the euro was flat $1.0701. The euro, down 1.3% against the dollar in June, was on track for its biggest monthly fall since January as political uncertainty weighed in the run-up to France's general elections. Against the Swiss franc, the dollar was also little changed at 0.8986 francs. Currency bid prices at 28 June​ 01:30 p.m. GMT Descripti RIC Last U.S. Pct YTD Pct High Low on Close Change Bid Bid Previous Session Dollar <=USD 105.9 105.89 0.02% 4.47% 106.13 105. index > 78 Euro/Doll 685 Dollar/Ye 38 Euro/Yen 46 Dollar/Sw 85 Sterling/ 685​ Dollar/Ca 84 Aussie/Do 62 Euro/Swis 1 Euro/Ster 58 NZ 58 llar Dollar/No 116 Euro/Norw 67 Dollar/Sw 877 Euro/Swed 364 (Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Carolina Mandl; Editing by Sharon Singleton)