* Yen hits new 3-1/2 year low vs USD, 4-1/2 year low vs AUD
* Nikkei report raises talk of inter-meeting BOJ easing
* Risk appetite continues to improve
By Ian Chua
SYDNEY, March 12 (Reuters) - The yen carved out a fresh 3-1/2 year low versus the greenback on Tuesday and fell to a 4-1/2 year trough on the Australian dollar as investors reacted to a media report that the Bank of Japan might deliver bold stimulus sooner than expected.
The Nikkei said the nominee for BOJ governor, Haruhiko Kuroda, had hinted on Monday he may launch new monetary easing steps soon after he takes office next week, rather than wait for the bank's first regular policy board meeting in early April.
The dollar rose as high as 96.67 yen, pipping the previous high of 96.60, while the Australian dollar touched 99.33, a level not seen since August 2008. The euro, meanwhile, traded at 125.91 yen, not far from a 34-month high around 127.71 reached last month.
The moves came against a backdrop of improving risk sentiment with the Dow closing at yet another record high, while Wall Street's "fear gauge", the CBOE Volatility Index, hit its lowest since February 2007. U.S. Treasuries fell as a result.
"Dollar/yen was already very bid overnight, consistent with the backup in U.S. Treasury yields. The Nikkei story has just given it a bit of a kick and its certainly adding to yen weakness," said Sue Trinh, senior currency strategist at RBC in Hong Kong.
"Speculation of an inter-meeting easing is probably going to be a focus on the day. It won't be unprecedented to call an unscheduled meeting...its not about emergency easing but if he were to do so, it's more symbolic and a signal to markets that he does mean business."
Against the dollar, the common currency stood at $1.3033 , having recovered around half of Friday's slide from $1.3135 to $1.2955. That saw the dollar index retreat from a seven-month peak of 82.924 to 82.658.
The dollar had rallied sharply on Friday after a closely watched report showed U.S. employers added more workers than expected, pushing the unemployment rate to a four-year low.
Japanese wholesale prices for February are due next, followed by a survey on Australian business confidence and India's consumer prices.
The previous report showed business confidence in Australia rebounded in January.
"We would need another decent print to contain Reserve Bank of Australia rate cut expectations and support AUD on crosses," said Kiran Kowshik, strategist at BNP Paribas.