The yen steadied against the dollar on Friday following early losses prompted by worries that the kidnapping of three Japanese civilians in Iraq could damage support for the government of Prime Minister Junichiro Koizumi.
A hitherto unknown Iraqi group, Saraya al-Mujahideen (Mujahideen Brigades), released a video of the three hostages on Thursday and vowed to "burn them alive" if Japanese troops did not leave Iraq in three days.
The dollar jumped to around 106.78 yen on the news, from 106.22/30 in late US trade.
It later cut those gains and fell back to 106.37/42 in lacklustre trade due to the Easter holidays in other major markets.
"Speculators and hedge funds appeared to be selling yen early in the morning in anticipation of a fall in stocks on the hostage news," said Mitsuo Imaizumi, deputy manager of the international bond and forex department at Daiwa Securities SMBC.
"But the outlook for the Japanese economy remains good. Dealers bought back the yen when they realised the Nikkei's falls were limited."
Tokyo's benchmark Nikkei stock average ended down 1.61 percent but wasn't far below a 32-month high hit on Thursday.
The yen hit a four-year high against the dollar of around 103.4 last week, as foreigners continued to snap up Japanese stocks on a raft of recent upbeat data on Japan's economy.
Japan's core private sector machinery orders, a key gauge of trends in capital spending, rose 4.9 percent in February from a month earlier on a seasonally adjusted basis, government data showed on Friday.
That was worse that the median forecast for a 7.2 percent rise in a recent Reuters poll, but the market was largely unmoved.
In razor-thin trade the euro was little changed at $1.2092/97 compared with $1.2083/87 in late New York trade.
Traders said the dollar had gained some support after first-time US unemployment claims fell to 328,000 in the week to April 3, better than forecasts of a smaller drop to 340,000.
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