TOKYO, Jan 23 The yen slumped to an eight-year low against the pound on Tuesday and held

TOKYO, Jan 23 (Reuters) The yen slumped to an eight-year low against the pound on Tuesday and held near a four-year low versus the dollar as investors shunned the low-yielding currency after the Bank of Japan kept rates on hold last week.

With Japan's rates already near zero and doubts brewing about whether the BOJ will be able to raise rates in February, the yen kept struggling against higher-yielding rivals.

''There's not a lot of factors to trade on this week, so it looks like the focus is going to stay on rate differentials,'' said Takehiko Jimbo, a foreign exchange manager at Mitsubishi UFJ Trust and Banking.

The yen has been clobbered since the BOJ left the overnight call rate at 0.25 percent last Thursday, which raised questions about the influence of government pressure against a move and convinced market players that rates will stay low for a while.

The minutes of the BOJ's December meeting released on Tuesday revealed some of the political pressure, with a Cabinet Office official saying at the gathering that more attention should be paid to the economy's downside risks.

The yen stayed close to a decade-low against the Australian dollar and a one-year trough against the New Zealand dollar as investors were keen to use the yen to fund purchases of higher-yielding currencies in what is known as the carry trade.

Sterling climbed to around 240.85 yen its highest since August 1998 according to Reuters calculated levels. A rise above 241 yen would be a 14-year high.

The pound has rallied ever since the Bank of England surprised markets with a rate increase to 5.25 percent earlier this month.

Sterling climbed to $1.9785 approaching a 14-year high of $1.9849 struck in December. The euro fell to a four-year low of 65.36 pence the weakest since February 2003.

The dollar edged up to 121.70 yen closing in on the 121.80 yen hit in New York for the first time since March 2003.

The U.S. currency has been boosted after a string of economic data last week bolstered views that the Federal Reserve was unlikely to trim interest rates from 5.25 percent any time soon.

The euro stood at $1.2940 dipping slightly on the day. Against the yen, the euro was little changed near 157.50 yen but within range of a record high of 158.06 yen struck in early January.

MORE YEN WEAKNESS Carry trades have played a major role in pummelling the yen as investors take advantage of rock-bottom rates in Japan to fund investments in higher-yielding currencies and other assets.

The overall carry trade trend is expected to remain intact given that Japanese rates were likely to lag those of rival currencies for some time to come.

''The pace of carry trades might drop off a bit, but by no means are they going to stop,'' said a dealer at a U.S. brokerage.

Trading was relatively subdued with no major economic data due on Tuesday. Market participants were sitting tight for U.S.

housing data later in the week to confirm that the housing market has overcome a soft patch.

The focus will also be on Germany's Ifo survey of business sentiment for January, due on Thursday, which could add to expectations for a rate rise by the European Central Bank in March.

On Friday, Japanese consumer price figures for December will be released. Any sign of a slowdown in the tepid 0.2 percent rise year-over-year in core CPI could stir expectations for the BOJ to stand pat on policy next month.

REUTERS CS GC1206