LONDON/SINGAPORE  - The Japanese yen drifted to its softest level in four weeks against the dollar on Wednesday on the back of rising U.S. yields, as placid markets encouraged investors to resume carry trades, while the euro weakened after German inflation data.

The dollar reached as high as 157.41 yen early on Wednesday, inching back to levels that led to bouts of likely intervention from Tokyo at the end of April and early May, albeit rising at much slower pace than it did last month.

It was last at 157.10 yen, steady on the day.

"Generally across Asian currencies, that relief rally post-CPI is starting to fade, as U.S. easing expectations are trimmed and some rocky bond auctions cause yields to climb back up, placing the yen and Chinese yuan under pressure," said Simon Harvey, head of FX analysis at Monex Europe.

Slightly softer U.S. consumer price inflation data this month weakened the dollar across the board. Since then, however, U.S Treasury yields have resumed their climb, with benchmark 10-year yields their highest in almost four weeks at 4.57%.

A lacklustre auction of two-year and five-year notes that raised doubts about demand for U.S. government debt, and data on Tuesday showing that U.S. consumer confidence unexpectedly improved in May, were the drivers.

The dollar was up 0.09% on the yuan traded offshore at 7.270.

"That continued weakness in the yuan is having knock-on effects on G10 currencies. Today's Australian inflation data should have been overwhelmingly positive for the Australian dollar," said Harvey.

The China-exposed Aussie dollar was flat on the day at $0.6653, even after Australian consumer price inflation unexpectedly rose to a five-month high in April, adding to risks that the next move in local interest rates might be up.

Also in the mix for the yen was the carry trade, where investors borrow in a low-yielding currency to invest in higher yielders.

"The yen remains under considerable downward pressure with carry appetite elevated due to low FX volatility. EUR/JPY has broken the 170-level on a more sustained basis in recent days for the first time on record, while GBP/JPY has broken the 200-level for the first time since 2008," said Derek Halpenny, head of research global markets EMEA at MUFG.

EURO WEAKENS

The euro softened after German regional inflation data showing month-on-month inflation in major regions was low, albeit higher on a year-on-year basis. The common currency was last 0.2% lower at $1.0838.

It also softened against the pound, dropping 0.3% to 84.84 pence, its lowest level in almost two years.

Germany will publish its national inflation data later Wednesday, giving a pointer to Friday's euro zone release. That data could, however, be swamped by the release of U.S. PCE inflation, the Fed's preferred reading, due the same day.

The euro is still set for a 1.6% rise in May, which would be its first monthly gain this year.

Versus the dollar, the pound was flat at $1.2762, having hit a two-month high the day before, leaving the dollar index up 0.1% at 104.77. ($1 = 157.3100 yen)

(Reporting by Ankur Banerjee in Singapore; Editing by Jacqueline Wong and Kevin Liffey)