The yen held near a two-month high against the dollar on Tuesday on expectations that upcoming economic data in Japan could trigger a new wave of buying in Japanese shares.
Speculation also simmered that the Bank of Japan, which has kept short-term rates near zero for most of the past five years, could end that policy sooner than expected.
But a lack of data and events on Tuesday, along with calmer Japanese government bond yields and sputtering stock prices, cornered the yen during Tokyo trade.
"JGBs have quieted down from the recent sell-off and the Nikkei couldn't hold on to big gains from yesterday," said Shogo Nagaya, forex manager at Nomura Trust and Banking.
"Things seem to have calmed down around here, and the yen is reflecting that."
The dollar fetched around 108.60 yen after falling on Monday to 108.23 yen, its lowest level in two months.
The Nikkei share average ended trade down 0.16 percent, after hitting a six-week intraday high on Monday.
But traders think the yen may have much to gain from Japan's tertiary index due on Thursday, industrial production slated for next Tuesday, and the Bank of Japan's tankan survey of corporate sentiment due on Thursday next week.
And although the BoJ has reiterated that it will not end its super-easy policy until deflation is clearly over, signs of stability in consumer price data due on Friday could stoke speculation about an end to the policy.
"There's a lot of events and data lined up for this week, and so it's pretty hard to change positions right now," said Nagaya.
Meanwhile, Japanese policymakers said they would watch out for renewed strength in the yen.
"Our basic stance remains unchanged: We are on alert against rapid moves that diverge from fundamentals," Finance Minister Sadakazu Tanigaki told reporters on Tuesday.
Tanigaki's position was shared by his deputy, Vice Finance Minister for International Affairs Zembei Mizoguchi.
Intervention talk has started to swirl in light of the yen's five percent rise against the dollar over the past month.
Japanese authorities have not intervened in the foreign exchange market since mid-March.
The euro was at around $1.2100, a tad down from late US levels, sitting in the middle of its $1.20-$1.22 range of the past 10 days.