FOREX-Yen breaks lower, dollar also soft on dovish Fed
* Euro reaches fresh four-year peak on yen
* USD down versus euro & commodity currencies on dovish Fed
* China signals willingness to tolerate stronger yuan
SYDNEY, Nov 20 (Reuters) - Pressure on the yen showed no signs of letting up on Wednesday, with the euro climbing to a four-year peak and the dollar holding onto overnight gains even after more dovish comments from top Federal Reserve officials.
But the greenback gave up some ground against the euro and commodity currencies after Fed Chairman Ben Bernanke said the U.S. central bank remained committed to maintaining highly accommodative policies for as long as they are needed.
The euro bought 135.77 yen, having climbed as far as 135.95 in early trade -- a high not seen since November 2009. The dollar fetched 100.11 yen after gaining 0.1 percent overnight, while the Australian dollar hit a one-month high of 94.56 yen.
Analysts said the low-yielding yen is still the preferred funding currency for carry trades, with the Bank of Japan expected to maintain its ultra-loose monetary policy at its meeting on Thursday.
Bernanke gave dollar bears a reason to emerge in Asia after he continued the dovish tone set earlier by other Fed officials including Janet Yellen and Charles Evans.
The dollar index slipped 0.4 percent against a basket of major currencies to a two-week low of 80.487 as the euro reached a two-week high of $1.3584.
Commodity currencies clambered up against the greenback with the Australian dollar at 1-1/2 week highs near $0.9450.
The U.S. dollar was already unsettled after China signalled it was willing to tolerate a stronger yuan, meaning it is less likely to buy U.S. dollars to keep its currency pinned down.
China's central bank chief, Zhou Xiaochuan vowed to quicken the process of full yuan convertibility that will see the bank exit from regular intervention on the currency market.
For years, the central bank has bought up foreign exchange, mostly U.S. dollars, to curb strength in the yuan fuelled by the country's export engine.
"Although no timeline was provided, the news should be supportive of further yuan appreciation," analysts at Barclays Capital wrote in a note to clients.
"We continue to forecast USD/CNY at 6.00 in one year. The impact of further CNY FX changes for other Asian currencies is more ambiguous. That said, the recent flurry of reform news out of China has helped boost Asian currencies and equities."
Also in focus is a batch of U.S. data, including retail sales and consumer prices due later in the day. In Asia, Japan's trade data will feature ahead of the BOJ's policy decision on Thursday.