* Dollar hits highest since late Oct vs yen
* Rise in U.S. yields supports dollar, BOJ comments help
* BOJ chief Shirakawa due to speak at 0700 GMT
By Charlotte Cooper
TOKYO, Dec 22 (Reuters) - The dollar rose further against the yen on Tuesday, hitting a two-month high and keeping pressure on the euro, as year-end unwinding of short positions supported it along with higher Treasury yields.
Yields on U.S. Treasury debt have climbed this week and expectations of a stronger growth outlook for the world's largest economy helped push the benchmark 10-year note yield to its highest in four months at about 3.70 percent on Tuesday.
The prospect of low U.S. interest rates has weighed on the dollar this year, increasing its attractiveness as a funding currency to buy assets with higher returns. But improving data has led some to review when they think the Federal Reserve might start to tighten policy.
Traders were also awaiting comments by Bank of Japan Governor Masaaki Shirakawa later, after he said on Monday the BOJ was ready to act promptly to provide funds to beat deflation and would maintain the current "effective zero interest rates".
"The dollar has strengthened recently with a rise in U.S. yields relative to those of other major economies reflecting recent strengthening in their indicators, and that has certainly helped the dollar turn the corner a bit," said Greg Gibbs, a currency strategist at RBS in Sydney.
"It does all get back to when the Fed may or may not be tightening policy, and the market is heading towards thinking they will get to tightening in Q3 next year."
The dollar was up 0.2 percent at 91.39 yen after touching 91.49 yen on trading platform EBS, its strongest since late October.
It rose above its 100-day moving average against the yen on Monday, a bullish sign after it hit a 14-year low of 84.82 yen at the end of November.
Traders said Japanese exporters had been expected to sell into dollar rallies but sales had not been as strong as thought.
The next target for the pair was just above 92.30 yen, at the high for October, and then mid-93, just below the 200-day moving average which is now 93.82, they said.
The euro gained 0.3 percent to 130.61 yen but the Australian dollar was unchanged at 80.32 yen.
The BOJ said last week it would not tolerate zero inflation or falling prices, making its most aggressive statement on deflation since the end of quantitative easing in 2006 and potentially setting the scene for more easing.
Andrew Robinson, FX market strategist at Saxo Bank in Singapore, said there was some anticipation in the market there might be more steps in the offing, after the BOJ introduced a 3-month fixed rate money market operation this month.
"That's a natural negative for the yen," he said.
The spread between the yield on the U.S. two-year note and Japan's two-year bond has widened to about 70 basis points from 48 bps at the start of the month.
A Reuters poll of U.S. primary government securities dealers last week showed most expect the Fed to raise rates by the end of the first quarter of 2011, although expectations ranged from the second quarter of 2010 to 2012.
Chicago Fed President Charles Evans said he expected the economy to grow 3.0-3.5 percent over the next 18 months but low inflation would give the Fed room to keep monetary policy easy for an extended period..
The euro hovered at $1.4293, just above a 3-½ month low of $1.4262 set late last week.
After trending higher against the dollar since March, it has come under fire this month on concerns about the fiscal health of some countries in the currency bloc, with Greece's sovereign ratings downgraded by two rating agencies this month.
European Central Bank Governing Council member Athanasios Orphanides was quoted as saying there was no risk of a euro zone country defaulting on its debt but also that Greece should not expect other EU countries to come to its rescue.
The dollar index, a measure of its performance against six other major currencies, held steady at 78.04, near a high of more than three months set at 78.144 on Monday.
The dollar was also testing two-month highs against the pound and the Australian dollar. (Additional reporting by Masayuki Kitano and Satomi Noguchi; Editing by Michael Watson)