* Dollar rises to highest level against yen since January
* Euro refreshes one-year lows vs USD on QE speculation
* U.S. Labor Day holiday dampens market activity
* Aussie slips after RBA holds policy steady as expected
By Jemima Kelly
LONDON, Sept 2 (Reuters) - The dollar hit its highest since January against the yen on Tuesday while a struggling euro sank to a one-year low against the greenback on expectations of a more aggressive easing programme in the euro zone.
The European Central Bank will hold a policy meeting and news conference later this week, which will be closely watched for any signs that ECB President Mario Draghi is moving towards full-scale quantitative easing - effectively the printing of money - to boost the flailing euro zone economy.
Since Draghi said he would use "all the available instruments" to ward off the threat of deflation at a U.S. Federal Reserve conference in Jackson Hole last month, speculation that the ECB will introduce QE has ramped up.
Data added fuel to that speculation on Monday: euro zone factories barely increased prices last month, and manufacturing activity in France fell at the fastest pace in 15 months. A separate report confirmed the German economy contracted for the first time in over a year in the second quarter.
That all helped to send the euro to a trough of $1.3115 on trading platform EBS on Tuesday, its lowest since September 2013. But some said that the market might be expecting too much from Thursday's meeting.
"Ahead of the ECB I would be a little bit cautious on the euro because it looks like a lot is now priced in following Draghi's comments at Jackson Hole, and there's a risk that those market expectations of policy action are overdone," said Ian Stannard, head of European currency strategy at Morgan Stanley.
"If we do get the ECB not quite meeting those expectations then we could get the euro rebounding off the back of that (against the dollar) in the very near-term."
Against the yen, the dollar rose 0.6 percent to a 7-1/2 month high of 104.88 yen. That brings January's peak of 105.45 - the highest since 2008 - into view if barriers above the 105-yen level can be overcome, traders said.
The dollar was helped by a planned cabinet reshuffle by Japan's Prime Minister Shinzo Abe later in the day, which is expected to include an appointment that could help push through reforms to the country's government pension fund, including the selling of Japanese sovereign debt.
The Bank of Japan will meet this week, but is expected to hold monetary policy steady for now despite a spate of weak economic data last week.
The jump against the Japanese currency helped the dollar to its highest since mid-July 2013 against a basket of major currencies.
The moves overnight came in thin trade, with market activity subdued due to Monday's Labor Day holiday in the United States.
"Today was very kind to people who are bullish on the dollar, even with no major fresh factors," said Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
"Against the yen, the dollar might have trouble topping the 105 level for now, but that depends on the direction of U.S. Treasury yields, and U.S. data later in the session."
Later on Tuesday, an Institute of Supply Management report on the U.S. manufacturing sector could provide further evidence of economic improvement and highlight the diverging paths between the United States and euro zone.
The Australian dollar slipped about 0.4 percent to $0.9294, after the country's central bank kept interest rates at record lows for the 12th straight policy meeting on Tuesday and seemed content to stay on the sidelines for a while to come as the economy wrestles with a waning mining boom. (Additional reporting by Lisa Twaronite in Tokyo and Ian Chua in Sydney; Editing by Alison Williams)