* 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 aimed at easing 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.
"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.
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.
The dollar rose 0.3 percent from late U.S. trading on Tuesday to 89.16 yen.
The euro rose 0.6 percent to $1.3256 a day after it climbed on a surprise rise in Germany's Ifo economic research institute's corporate sentiment data.
Against the yen, the single European currency climbed 0.9 percent to 118.18 yen, having rebounded from a seven-year low of 112.08 yen hit on trading platform EBS last week.
There was little currency reaction to the outcome of bilateral telephone talks between Japanese Finance Minister Shoichi Nakagawa and U.S. Treasury Secretary Timothy Geithner.
Nakagawa and Geithner agreed the two nations needed to work closely to overcome troubles in the global economy, a senior Japanese finance ministry official said, adding they did not touch on currency rate issues in their talks.
RISK APPETITE
The yen fell broadly, with higher-yielding currencies supported as the Nikkei share average erased early losses to turn positive in the afternoon, and U.S. S&P 500 stock futures climbed around 2 percent.
Sterling was up 1.2 percent at 127.30 yen. The pound sank to a record low of 118.80 yen last week.
"Right now, market players are not thinking so much about selling the dollar based on the fact that the United States is not doing well," said a trader for a Japanese brokerage house.
"Instead, people are mulling over whether or not we are in an environment conducive to taking risks."
U.S. stock futures are likely getting a lift from hopes for further economic measures, such as the idea of the U.S. government creating a "bad bank", he said.
Senate Banking Committee Chairman Chris Dodd said on Tuesday he was aware the Obama administration was discussing the idea of setting up a "bad bank" to clean toxic assets from struggling financial companies.
Another potentially positive factor for the dollar was the launch on Wednesday of a new Nomura Asset Management mutual fund investing in high-yielding U.S. corporate bonds. Industry sources said Nomura Asset's "Nomura U.S. High-Yield Bond Investment Trust" fund was likely to draw more than 100 billion yen ($1.12 billion) from Japanese retail investors.
Earlier, the Australian dollar dipped after data showed on Wednesday that 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.
But the Australian dollar later rebounded and rose 0.9 percent on the day to $0.6675. (Additional reporting by Masayuki Kitano; Editing by Brent Kininmont)