* Dollar knocked off two-week highs vs currency basket
* Yen at fresh 6-year low vs NZ dlr; 10-month low vs Aussie
* Yellen says Fed's commitment still needed for some time (Updates prices, adds fresh comment, details)
By Anirban Nag
LONDON, April 1 (Reuters) - The yen eased on Tuesday as a hike in Japan's sales tax came into effect, although the dollar failed to gain much traction after the Federal Reserve chair defended the central bank's ultra-loose policy and highlighted slack in the economy.
The dollar index slipped to 80.059, off a two-week high of 80.296 hit on Monday. Against the yen, the dollar was steady at 103.25 yen, below its three-week high of 103.44 yen struck a day earlier.
Japan's Tankan survey was a slight disappointment and raised doubts about whether the pace of activity will continue to improve this year. It will keep alive expectations the Bank of Japan may ease policy further if the pain from the sales tax hike proves to be much worse than estimated, analysts said.
"If there is clear weakness in the economic data from Japan, we could see the BOJ ease policy. But we do not expect that policy easing to take place anytime soon, perhaps in the third quarter," said Yujiro Gato, currency strategist at Nomura.
"So those expecting the BOJ to ease in the short term could be in for a disappointment. But any dips in dollar/yen should be bought into and we eventually expect it to rise to 104 yen."
In a fresh setback for dollar bulls, though, Fed chair Janet Yellen said on Monday that "considerable" slack still existed in the U.S. jobs market and that further monetary stimulus could be effective.
Her comments somewhat countered those she made last month, when she suggested the possibility of rate hikes from early 2015.
"Yellen's comments appeared to be more dovish than what she had said earlier ... so the market does seem to be in a risk-positive mode," said Divya Devesh, FX strategist at Standard Chartered Bank in Singapore. "So we have seen the likes of commodities currencies rallying," he said.
Improving risk sentiment, partly on hopes of fresh stimulus from China, the world's second-largest economy, have also weighed on the Japanese currency of late. The yen is sought during times of financial market stress and economic uncertainty.
In particular, the yen has fallen sharply against higher-yielding commodity currencies. The New Zealand dollar reached a fresh six-year high of 89.70 yen on Tuesday, after rallying 3.6 percent in the first quarter.
The kiwi has been in demand as the Reserve Bank of New Zealand became the first central bank of a developed country to start normalising policy this year.
The Australian dollar saw some choppy intraday swings. A slight improvement in China's official Purchasing Managers' Index initially helped the Aussie, though a private survey pointed to a contraction in activity in March.
The Aussie then extended its gains to reach a four-month high of $0.9310 after the Reserve Bank of Australia kept interest rates unchanged at 2.5 percent, as expected.
But it quickly gave back those gains after the RBA noted the currency was still high by historical standards, and last stood at $0.9275, slightly higher on the day.
Against the yen, the Australian dollar touched a 10-month high of 95.97 yen on Tuesday and was last up 0.1 percent on the day at 95.75 yen.
The euro climbed to $1.3785, having rebounded from Monday's low of $1.3721 after data showed easing price pressures in the euro zone. Most traders do not expect the European Central Bank of ease policy on Thursday despite the drop in inflation last month to 0.5 percent.
As such the euro was also up against the yen at 142.375 yen . (Additional reporting by Masayuki Kitano; Editing by Susan Fenton)