* Euro hits 11-week high vs yen before retreating
* Euro firm vs dollar, yen steady
* Market awaits outcome of BOJ, FOMC meetings
By Charlotte Cooper
TOKYO, March 18 (Reuters) - The euro held close to a recent one-month high on the dollar and briefly forged an 11-week peak against the yen on Wednesday, buoyed by improved investor confidence after surprisingly upbeat U.S. and German data.
Currencies traded in tight ranges in early Asian business as investors awaited the outcome of a Bank of Japan policy meeting and a Federal Open Market Committee meeting later in the day.
The BOJ may increase its buying of government bonds to funnel more funds to the market, after offering up to 1 trillion yen ($10.14 billion) in subordinated loans to Japanese banks on Tuesday to bolster their depleted capital.
BOJ policymakers will debate whether to increase outright buying of Japanese government bonds to 1.6 trillion yen per month from 1.4 trillion yen. Analysts said the yen should take the decision in its stride if the BOJ did make such a move.
"If the BOJ decision follows this increase then there will be no impact. It is kind of a part of quantitative easing, it's yen negative per se but it's already priced in," said Masafumi Yamamoto, head of FX strategy Japan at Royal Bank of Scotland.
With many major economies' interest rates close to zero, central banks around the world are considering unconventional measures such as quantitative easing, which was employed by Japan from 2001 to 2006, to keep credit flowing.
It involves flooding the banking system with money to promote lending, usually by buying large quantities of assets from banks.
The dollar eased 0.1 percent to 98.47 yen, still well short of this month's four-month peak at 99.69.
The euro hit its highest since late December at 128.83 yen in early Asian trade but then retreated to stabilise almost unchanged on the day at 128.43 yen. It rose 0.8 percent on Tuesday.
One trader said there had been talk of Japanese investors buying yen for fund repatriation but the move quickly fizzled.
CHANGE IN RISK CLIMATE
Analysts say investors are starting to feel a little more confident that conditions may be starting to stabilise, helped by a 22.2 percent surge in U.S. housing starts in February and an improvement in German investor sentiment.
This has bolstered the euro and put pressure on the dollar, which tends to gain when investors become risk averse because it is seen as the safest store of value at time when economies across the globe are contracting.
"Now the market is relieved, getting a little optimistic, so that's why (dollar) repatriation or deleveraging flows stop and there's no dollar buying," said Tohru Sasaki, chief foreign exchange strategist Japan at JP Morgan Securities.
Royal Bank of Scotland's Yamamoto said, however, that the euro's recent gains were as much on buying back by investors who had expected it to fall further, as the market had priced in a lot of negative news from countries surrounding the euro zone which had not materialised.
"Short-covering of the euro - that's the best word to capture the rally of the euro," he said.
"The European Central Bank is behind the curve and it must do more in coming months. Euro/dollar and euro/yen may recover more but it's not the start of an uptrend," he said.
The euro rose 0.2 percent to $1.3040, after gaining 0.4 percent in the previous session.
It hovered below Monday's five-week high of $1.3072 and just below its 100-day moving average on the technical charts which was providing resistance at about $1.3058. (Editing by Chris Gallagher)