* Dollar falls vs yen, touches 17-day low
* Below-expected payrolls data cuts outlook for Friday jobs report
* Dollar rises vs euro after ECB growth expectations underwhelm (Updates to afternoon trading, adds quote, updates data)
By Dion Rabouin
NEW YORK, June 2 The dollar fell to its lowest against the yen in more than two weeks on Thursday, weighed down by uncertainty over the impact of policy divergence between the U.S. Federal Reserve and the Bank of Japan.
Investors sold dollars and bought yen as skepticism of the Bank of Japan's monetary policy grew and doubt loomed about the likelihood of the Fed raising interest rates ahead of Friday's U.S. non-farm payrolls report.
A weaker-than-expected ADP National Employment Report showed U.S. private payrolls increased by 173,000 last month, missing estimates of 175,000 new jobs expected by economists surveyed by Reuters. That helped trim expectations for Friday's jobs report and increased doubt the Fed would raise U.S. overnight interest rates at its upcoming policy meeting, analysts said.
"Between now and the Fed's June meeting there are very few data points and the (non-farm payrolls) number is a fairly important, fairly significant one," said Fabian Eliasson, vice president for currency sales at Mizuho Corporate Bank in New York.
Fed funds futures show traders see only a 21 percent chance the U.S. central bank will raise rates when it next meets on June 14-15, according to CME Group's FedWatch tool.
This week, Japanese Prime Minister Shinzo Abe announced a 2-1/2-year delay in a sales tax increase, raising concerns among some analysts that the country could be less likely to provide additional monetary stimulus and that current efforts have failed.
"What we're seeing is a continued disappointment in terms of monetary policy out of Japan, which has put downward pressure on USDJPY as the yen continues to strengthen," said Scott Smith, senior corporate FX trader and market analyst at Cambridge Global Payments in Toronto.
The dollar fell to 108.50 yen in early trading, its lowest since May 16. That level was down 2.5 percent from a one-month high of 111.45 yen on Monday.
The greenback was last down 0.65 percent to 108.83 yen .
The dollar rose against the euro after the European Central Bank kept its interest rate unchanged and ECB President Mario Draghi said the bank made only marginal upward adjustments to its growth projections.
The ECB edged up its inflation forecast for 2016 but predicted price growth would remain below target through 2018.
The euro fell 0.3 percent against the dollar to $1.115.
The dollar index, which tracks the greenback against six major world currencies, rose 0.1 percent to 95.555. (Reporting by Dion Rabouin; Editing by Frances Kerry and David Gregorio)
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