* Yen up 1.1 pct on day
* Euro rises for 2nd day after falls last week
* Dollar retreats after best week since 2016
* Rand up after ANC decides to remove Zuma
* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh
LONDON, Feb 13 (Reuters) - The Japanese yen rose to a five-month high on Tuesday on the back of broad-based selling of the dollar and speculation the Bank of Japan could be close to dialing back record levels of monetary stimulus.
The yen has gained 1.5 percent against the dollar this month, benefiting last week from a rush by investors into currencies deemed safer amid the rout in equity markets.
But while risk appetite has recovered this week, investors have continued to sell dollars and buy yen. The dollar was down as much as half a percent against a basket of currencies, reversing some of its gains of last week, when it enjoyed its best performance since 2016.
"A lot of people in the market are expecting the yen to rise, because a turnaround in BoJ monetary policy has not been priced in," Ulrich Leuchtmann, a Frankfurt-based analyst at Commerzbank said.
Leuchtmann said that he did not subscribe to the view that the BoJ would follow other central banks in gradually ending the era of easy money anytime soon, but it helped explain the move.
Many traders betting against the yen were also likely stopped out as the yen passed the 108 yen versus the dollar mark, exacerbating Tuesday's rally, Morten Helt at Danske Bank said.
The yen rose as much as 1.1 percent to 107.42 yen, close to the high it hit in September at 107.32 yen. If the yen breaks through that, it will hit its best level since late 2016.
The yen also gained 0.5 percent versus the euro to 132.83 yen after earlier rising to as high as 132.52 yen.
The gains came despite Japanese government leaders reaffirming their confidence in Bank of Japan Governor Haruhiko Kuroda on Tuesday, bolstering expectations that he will be reappointed for a rare second term and a sign that ultra-loose monetary policy will remain in place.
EURO RISES; EM TREAD WATER
Elsewhere, the euro rose to a daily high of $1.2351, up 0.5 percent, as gains in global equity markets encouraged traders to sell the dollar and tiptoe back into riskier assets.
"It's an interesting combination of the return of risk appetite and U.S. bond yields also dragging the dollar," said Alvin Tan, London-based FX strategist at Societe Generale, adding there was little euro-specific news to push the single currency higher.
A sharp sell-off in stock markets last week drove traders to unwind one of the most popular bets of the year - buying the euro on expectations the European Central Bank will scale back its stimulus later this year amid a strong recovery in the bloc's economy.
Although many market players remain bullish on the euro, the currency lacks clear catalysts for further gains as a March election in Italy and a fragile coalition deal in Germany create an uncertain political backdrop.
Though risk appetite appears to be recovering, emerging market currencies that sold off last week failed to make much headway, with the Turkish lira, Mexican Peso and Russia's rouble all treading water.
The commodity-linked Australian and Canadian dollars were also trading flat.
Prospects of higher inflation globally have rattled investors this month and have helped drive equity market falls.
"Market sentiment is still fragile," Tan said.
The South African rand briefly gained after the ruling African National Congress party executive committee decided to remove President Jacob Zuma as head of state.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.bi z / c m s / ? p a g e I d = l i v e m a r k e t s (Editing by Robin Pomeroy)