TOKYO/LONDON  - The yen hit fresh multi-year lows against the dollar and the euro on Tuesday, keeping investors on heightened intervention watch ahead of the Bank of Japan's meeting this week, while dovish policy maker chatter left sterling around its softest in months.

The euro, which climbed broadly after stronger than expected business activity data in France and Germany, reached 165.62 yen, its highest since 2008.

"That's a combination of the stronger euro today, with the services data moving back into expansionary territory, an encouraging sign that the headwinds to growth for consumer spending are continuing to fade, and the yen continuing to weaken on the expectation that the BOJ will be very gradual in tightening policy," said Lee Hardman, senior currency strategist at MUFG.

The dollar rose to 154.87 yen, its highest since 1990, edging ever closer to 155, a level considered by many participants as the new trigger for intervention by Japanese authorities.

Japanese Finance Minister Shunichi Suzuki said last week's meeting with his U.S. and South Korean counterparts has laid the groundwork for Tokyo to act against excessive yen moves, the strongest warning to date on the chance of intervention.

However, there are doubts about whether Tokyo will act so close to the BOJ's two-day policy meeting that starts on Thursday.

Japan's central bank is expected to project inflation will stay around its 2% target for the next three years in new forecasts due on Friday, signalling its readiness to cautiously raise interest rates again this year from current near-zero levels.

"We've had jawboning now for a number of weeks, and they still haven't come in and intervened directly in the FX market. So people are questioning what's going to bring them to the table," said Hardman.

The euro gained against more than just the embattled yen, climbing 0.2% on the dollar to $1.06753, having steadied after losses earlier in the month.

The common currency gained 0.16% on the pound to 86.39 pence, having briefly matched the previous day's four month high of 86.43 pence, after the German PMI data.

Comments from Bank of England policy makers that they see inflation slowing back towards the 2% target, and likely staying there, have seen investors become more confident that Bank of England rate cuts will come in the summer.

Earlier in the year, sterling took support from expectations that Bank of England would cut rates meaningfully later than the European Central Bank, which markets currently see moving in June.

Meanwhile markets see the U.S. Federal Reserve as being one of the last major central banks to cut, and are currently pricing in a 46% chance of the Fed's first rate cut starting in September, with November not far behind at 42%, according to the CME FedWatch Tool.

That was in sharp contrast to just a few weeks ago when markets were betting on June for the U.S. monetary easing cycle to begin, a shift that has driven the dollar higher around the world.

The pound dropped to a five month low against the dollar of $1.2299 on Monday, though it was last a fraction higher at $1.2360.

Investors will have another chance to assess the strength of the U.S. economy this week, with first-quarter gross domestic product data on Thursday and personal consumption price expenditures (PCE) index, the Fed's preferred measure of inflation, on Friday.

"It is conceivable that markets further push back the timing of the expected first rate cut from September, if this week’s GDP and/or PCE adds to concerns about disinflation stalling. The risk therefore lies towards higher U.S. yields and a stronger USD," said Carol Kong, currency strategist at Commonwealth Bank of Australia.

Markets forecasts are for a 0.3% increase in the headline PCE number in March, unchanged from the previous month, and a year-on-year gain of 2.6%, compared with a 2.5% increase in February, according to a Reuters poll.

(Reporting by Brigid Riley in Tokyo and Alun John in London Editing by Shri Navaratnam, William Maclean)