* Dollar up on week after lawmaker stirs BOJ easing speculation
* Sterling in focus after Bank of England boost
* Aussie falls back after hitting 9-day high (Updates throughout, changes dateline from previous TOKYO/SYDNEY)
By Patrick Graham
LONDON, Sept 11 (Reuters) - The dollar held onto most of this week's gains against the yen on Friday in the face of a business survey that leaned against strengthening speculation of another round of quantitative easing by the Bank of Japan.
With minds turning to a Federal Reserve meeting next week seen as the first clear chance of U.S. policymakers raising interest rates, most of the major currency pairs were steady.
The yen, whose weakening has been a central plank of Prime Minister Shinzo Abe's plan to dig Japan out of a long-term cycle of stagnant growth and investment, has gained 3.5 percent in a month of China-driven market turmoil.
That reflects its status as investors' safe haven of choice, but it remains 20 percent weaker against the dollar than it was a year ago and has fallen more than 1 percent this week.
"The prospect of another round of BoJ easing is rising and risk aversion continues to slowly fade," said RBC Capital Markets strategist Adam Cole.
"Prospective capital flows still argue for trend weakness in the yen and, in the absence of another shock to general risk appetite, we expect the grind higher in USD/JPY to resume. We retain our forecast for the peak in the dollar at 132 yen."
After scaling a 10-day high of 121.38 overnight, the dollar was down less than 0.1 percent at 120.50 yen JPY= in early European deals, a 1.2 percent gain on the week.
A media report on Thursday quoted Japanese ruling party lawmaker Kozo Yamamoto as saying that the Bank of Japan's Oct. 30 policy meeting would be a "good opportunity" for further monetary easing.
This was not the first time the outspoken Yamamoto, an adviser to Japanese premier Shinzo Abe, has openly expressed his views on monetary policy. But the timing appears to have struck a cord in the markets which have recently seen soft Japanese data and equities engulfed in volatility.
A government survey on Friday showed Japanese business sentiment turned positive in July-September and companies stuck to upbeat spending plans, offering the yen some support.
The Australian dollar was one of the few substantial movers, down 0.4 percent at $0.7044 in early European deals after surging 0.8 percent overnight on the back of a strong employment reading overnight.
A 1.2 percent overnight jump in offshore yuan against the dollar, after suspected rare intervention by Chinese state-owned banks, also provided a lift to the Aussie, but dealers in London said many investors were happy to take profit on a solid performance for the Australian currency this week.
"All of the factors that have driven Aussie weakness in the last year are still there, so any gains, its about 2 percent this week, are likely to be sold into," said a trader with one international bank in London.
Traders said there would be some attention to the impact on sterling and other UK market pricing of the election, due on Saturday, of a new leader of Britain's main opposition Labour Party, likely to be from its left wing.
Sterling had enjoyed a positive session after Bank of England policymakers on Thursday played down the impact of China's stock-market slump on Britain's prospects.
The pound, which scurried to a two-week high of $1.5476 on the bank's optimistic outlook, last stood at $1.5443.