NEW YORK, March 17 (Reuters) - The dollar rose against the yen on Tuesday as surprisingly strong U.S. housing data whetted risk appetite and the Bank of Japan plans to buy subordinated loans raised fears the central bank would flood the market with yen.

The euro also rose above 128 yen, just shy of its highest level this year, and gained against the dollar, lifted partly by data showing stronger-than-expected German investor sentiment.The BOJ move overnight weighed on the yen and we've seen some relatively robust moves in equities," said Mark Frey, head of FX trading at Custom House in Victoria, British Columbia.

But a lot of currency are starting to run out of gas, as we've seen a moderate rally in risk for six days and now we need some fresh impetus to drive us from here," he said.Analysts said that could come at the end of the Federal Reserve's two-day policy meeting on Wednesday, when Frey said traders "will want to see how aggressive the Fed will be in buying paper."The dollar was last up 0.5 percent at 98.60 yen while the euro rose 0.7 percent to 128.20 yen , near its 2009 high around 128.74 yen, according to Reuters data.

Yen selling picked up after the Bank of Japan said it would buy up to 1 trillion yen ($10.2 billion) in subordinated bank loans to bolster the banks' depleted capital.[ID:nT322335]That sparked fear that the BOJ will flood the market with yen, putting downward pressure on a currency already struggling amid worries about the deteriorating Japanese economy.

The euro also rose 0.3 percent to $1.2996 after briefly pushing above $1.30 for the second straight day. It could rally further, Frey said, if the Fed on Wednesday unveils plans to buy long-dated Treasuries. If not, he said risk aversion will rise and the dollar will likely rally.