* Dollar/yen up on improved investor risk appetite
* Euro gains on Tuesday's surprise rise in German Ifo
* Focus on whether Fed to unveil steps to fight credit crunch
* Australian Q4 inflation falls by most in a decade
By Rika Otsuka
TOKYO, Jan 28 (Reuters) - The dollar edged up against the yen on Wednesday as an improved appetite for risk prompted investors to dump the safe-haven Japanese currency, while the dollar dipped versus the euro as players awaited the outcome of a Federal Reserve meeting.
The Fed concludes a two-day policy meeting later in the day and could unveil new steps to ease the credit crunch.
With the benchmark interest rate already near zero, the market is looking for any new policy measures, such as purchasing long-dated Treasuries.
"Players in the currency market are unsure if the Fed's decision will have a direct impact on exchange rates, as an interest rate move is not expected," said a forex trader at a Japanese trust bank. "But we will certainly take our cue from reactions in the stock and bond markets."
Japanese and Chinese investors have been big buyers of U.S. government bonds and any shift in their investment stance on Treasuries could affect the dollar.
"If the Fed makes comments on purchasing Treasuries, it would soothe concerns that overseas investors may start picking up fewer U.S. bonds," said Hideki Hayashi, chief economist at Shinko Securities.
The dollar was at 89.15 yen, up 0.2 percent from late U.S. trade.
The Japanese government launched a $16.7 billion scheme on Tuesday to buy shares in companies whose future has been threatened by the financial crisis.
The move helped to improve risk appetite among Japanese investors, boosting Tokyo's Nikkei share average by nearly 5 percent on Tuesday and sparking buying of the dollar, the euro and sterling against the yen. The euro climbed 0.9 percent to 118.20 yen, having rebounded from a seven-year low of 112.08 yen hit last week.
Sterling was up 1.0 percent at 126.83 yen. The pound sank to a record low of 118.80 yen last week.
The European single currency rose 0.6 percent to $1.3244 a day after it rallied on a surprise rise in German's Ifo economic research institute's corporate sentiment data.
Investors were reluctant to buy the dollar in general as data from industry group the Conference Board showed on Tuesday that U.S. consumer confidence was at a record low this month, while U.S. home prices fell by a record 18.2 percent in the year to November.
The Australian dollar trimmed earlier gains after government data showed on Wednesday Australia's consumer prices fell by the most in a decade in the fourth quarter, justifying talk of another aggressive interest rate cut next week.
The Australian dollar was up 0.5 percent at $0.6646, but off the day's high of $0.6670.
The Reserve Bank of Australia holds its monthly meeting on Feb. 3 and investors expect a cut of at least 75 basis points in the 4.25 percent cash rate. (Editing by Michael Watson)