The yen edged up against major currencies on Friday after a slide in Asian stocks chilled risk demand as it highlighted the possibility that problems in the US housing and credit markets may sting the broader economy.
Trading was subdued as few investors were willing to take on fresh positions a week after liquidity in credit markets shrivelled up due to ongoing turmoil in the US subprime mortgage market, triggering a frantic sell-off in global markets.
The dollar and higher-yielding currencies have since recovered somewhat, but investors remain cautious that subprime-related problems may continue, keeping demand low for riskier trades such as those in stocks, credit and assets in high yielders.
"Today's move reflects the view that the overall situation isn't so great," said a trader at a Japanese bank. "It's not like there's a lot of bargain hunters around," he added, referring to demand to buy currencies against the yen. "Risk aversion still remains high."
The dollar slipped 0.2 percent against the yen to 116.10 yen after rebounding as much as 5 percent this week from a 14-month low of 111.60 yen struck a week ago on electronic trading platform EBS.
The euro slipped 0.30 percent to 157.50 yen after recovering as much as around 6.5 percent this week from a tumble to 149.25 yen hit last Friday for the first time since early November.
Market volatility has calmed since last week, but currency moves remained at the mercy of equities, with both the dollar and the euro sliding to the day's low against the yen just after the Nikkei average fell to its weakest level of the day.
The Nikkei was down 0.41 percent at 16,248.76. Overall, markets have stabilised from a week ago, helped by Bank of America's move on Wednesday to invest $2 billion in troubled US mortgage lender Countrywide Financial that soothed some credit jitters and offered some stability to global stocks.
"Calmer stock markets are helping the forex market to also calm down," said Hideki Hayashi, a global strategist at Shinko Securities. Still, some traders said that additional, major gains in the dollar versus the yen above 116 yen may be difficult in the near term given the chance that more bad news may come out of the subprime sector.
The euro was little changed at $1.3560. High-yielding currencies like the New Zealand dollar stayed under selling pressure, sliding 0.25 percent against the dollar to $0.7125 and falling 0.6 percent to 82.75 yen. Despite some improvements in credit and equities markets, investors remained concerned about the possible subprime spillover to the broader US economy.