* Dollar index edges away from this week's two-month highs

* Yellen on deck, with planned speech on Friday

By Lisa Twaronite

TOKYO, May 26 (Reuters) - The yen surged in early trade on Thursday, chipping away at the recently buoyant dollar as investors looked ahead to a speech by Federal Reserve chief Janet Yellen on whether a rate increase is imminent and on a pending decision on a planned sales tax hike in Japan.

The dollar had stuck close to its recent ranges, but a sudden spike in the yen triggered stop-loss orders and brought as low as 109.54 from a session high of 110.235. It was last at 109.72, taking back some of the ground it lost and moving toward its three-week high of 110.590 yen marked on Friday.

"The sudden move shows how jumpy everyone is," said a trader at a foreign bank in Tokyo.

The yen has been volatile of late, particularly around the timing of Japan's sales tax increase.

Japanese Finance Minister Taro Aso said on Wednesday that he told his G7 counterparts at a finance leaders' meeting last week that Japan will raise the tax as planned. But he did not say whether that meant Japan has officially pledged to the international community that it will go ahead with the increase.

Japan's top government spokesman on Wednesday denied a newspaper report that Prime Minister Shinzo Abe is likely to delay the sales tax hike now scheduled for next year.

"You have conflicting opinions coming out of the same government, and I think that's creating some noise in the market," said Jennifer Vail, head of fixed-income research at U.S. Bank Wealth Management in Portland, Oregon.

"Anytime you have conflicting major players in the market place, it creates confusion, and I think the yen will likely struggle without clarity on whether they're going to delay the sales tax hike," she said.

Markets were also keeping an eye on the Group of Seven leaders summit meeting in Japan. Concerns about the health of the global economy are likely to be a key topic among the participants, although full agreement on macro-economic policy looks elusive.

Fed Chair Yellen is due to speak on Friday, and could reinforce expectations that the central bank might raise interest rates as early as next month, or July. Hawkish minutes from the Fed's April policy meeting and comments by several policymakers hinted that a hike could be forthcoming.

The dollar index inched down 0.1 percent to 95.284, not far from a two-month high of 95.661 notched in the previous session.

The euro added 0.1 percent to $1.1169, after skidding to a roughly 10-week low of $1.1129 on Wednesday.