* U.S. currency set for biggest daily jump in five months
* Falling currency market volatility boosts risk appetite
* U.S. February CPI data due later in the day
* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, March 13 (Reuters) - The dollar surged against the yen on Tuesday, heading for its biggest single-day rise in five months, before inflation data later in the day that may alter expectations for U.S. interest rate moves this year.
Markets have priced in 75 basis points of rate rises in the United States so far this year, and analysts say stronger-than-expected inflation data might cement the case for a fourth increase in 2018 after strong jobs data last week.
"The broader story remains that of U.S. monetary policy normalization in the backdrop of an improving economy, and a further decline in currency market volatility would only fuel more risk taking appetite," said Commerzbank's FX strategist Thu Lan Nguyen.
The dollar rose to a two-week high and was up 0.7 percent on the day at 107.28 yen, its biggest single-day rise since late October. Even so, the yen was set for a 5 percent gain against the dollar so far this year.
Against a basket of currencies, the dollar gained just 0.1 percent at 90.02.
The yen came under some pressure from a scandal involving Prime Minister Shinzo Abe. It weakened by 0.3 to 0.5 percent against other major currencies after Japan's ministry of finance said on Monday it altered documents for a sale of state-owned land linked to Abe's wife.
However, Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York said that "many see the eruption of the scandal that threatens senior government officials as yen-positive because it weakens those that ostensibly want to depreciate the yen through monetary policy."
Morgan Stanley strategists said a further deterioration in Abe's political situation might see the yen "forcefully return towards its previous upward trend."
Elsewhere, the renewed drop in currency volatility prompted investors to bet on higher-yield currencies. The Australian dollar recovered from three-month lows and the euro gained nearly 2 percent in the last 10 trading sessions against the Swiss franc.
The euro was broadly flat around $1.2329 against the dollar on the day.
A key focus for investors is the U.S. consumer price data due at 1230 GMT. Median forecasts by economists polled by Reuters forecast annual core CPI inflation of 1.8 percent in February, flat compared with January.
A higher reading could stoke expectations the Federal Reserve will raise rates four times this year rather than three. A rate increase at its meeting on March 20-21 has been long considered a done deal. Another increase in June is almost fully priced in.
But traders are also aware that the prospects of more U.S. rate hikes may not lift the U.S. currency, considering other factors weighing on the currency.
One big issue is U.S. President Donald Trump's tariff on steel and aluminium, which many investors worry could trigger retaliatory moves by U.S. trade partners and hurt the economy.
Elsewhere, sterling slipped 0.1 percent against the euro on the day, after the EU's chief Brexit negotiator, Michel Barnier, said that Britain cannot retain the benefits of the European Union after it leaves the bloc in 2019.
Reporting by Saikat Chatterjee; additional reporting by Hideyuki Sano and Masayuki Kitano in Tokyo; editing by Larry King