LONDON- The Japanese yen held near three-year lows versus the U.S. dollar on Tuesday as a surge in U.S. Treasury yields and rising commodity prices, particularly oil, prompted investors to dump the currency.

In London trading, the dollar held at 113.28 yen after briefly hitting 113.50 in Asian trading, its highest since December 2018.

The yen's recent weakness -- falling 4% versus the dollar in three weeks -- comes at a time when global bond yields have surged due to inflationary concerns. Ten-year U.S. yields topped 1.60% for the first time since late May.

It also comes as Japan's new Prime Minister Fumio Kishida said on the weekend that he won't seek to change the country's taxes on capital gains and dividends that has spooked investors and raised concerns about outflows from the stock markets. 

"The break-out last week on U.S. yields and the U-turn on capital gains tax issue over the weekend has helped the long stock market and long commodity currency versus yen trades," said Kenneth Broux, an FX strategist at Societe Generale.

The surge in U.S. yields forced investors to dump the yen versus the dollar, resulting in the second-biggest daily fall in the value of the Japanese currency on Monday.

The yen also stayed in sight of multi-month lows against other majors with sterling, the euro and the Aussie dollar all trading just off three-month highs hit against the Japanese currency the previous day, when the Aussie enjoyed its best session against the yen in 11 months.

A Deutsche Bank monthly market sentiment survey in October noted that an overwhelming majority of respondents expect U.S. Treasury yields to rise from current levels.

But apart from the yen, safe-haven currencies were in demand as global indicators of market sentiment flashed warning signs.

The ZEW indicator of economic sentiment in Germany slipped for the fifth month, the latest in a string of indicators showing supply bottlenecks holding back recovery in Europe's largest economy. 

As a result, the euro held near its lowest levels versus the Swiss franc  in 2021, falling more than 2% since mid-September.

The dollar index, which measures the greenback against a basket of other major currencies, was at 94.30, not far from a one-year high of 94.504 touched at the end of September, as traders positioned themselves for the U.S. Federal Reserve to announce a tapering of its massive bond buying programme in November.

"The primary driver of the move is the further rise that we've seen in U.S. Treasury yields - so it's a fairly simple story of a widening rates differential...adding to the attraction of the carry trade," said National Australia Bank's head of foreign exchange strategy, Ray Attrill.

In cryptocurrencies, bitcoin edged off a five month high, falling 1.3% in Asian trading to $56,700. Ether, the world's second biggest cryptocurrency dropped 1.54% to $3,489.

(Reporting by Saikat Chatterjee; Editing by Kirsten Donovan and Bernadette Baum) ((; +44-20-7542-1713; Reuters Messaging: