The yen weakened broadly on Monday as a rally in global equity markets signalled a tentative recovery in risk appetite, while the dollar steadied against a basket of major currencies.
After being whipsawed last week on a batch of US developments - including another hefty interest rate cut, weak growth and jobs figures and a surprisingly perky manufacturing report - the dollar took a breather on Monday.
The rebound in global equity markets, meanwhile, encouraged investors to sell low-yielding units like the yen for relatively higher-yielding currencies like the Australian dollar and euro. After the flood of news from the United States last week, investors will turn their attention this week to central bank policy meetings in Europe and Australia.
The Reserve Bank of Australia is expected to raise interest rates later this week, while the European Central Bank is expected to keep rates on hold. The Bank of England will likely lower borrowing costs, although sterling strengthened broadly on Monday in a snap back from heavy selling on Friday.
"Stocks are performing okay and despite the very soft NFP (US jobs report last week) there is still some risk appetite in the market, and that is benefiting the carry trade," said Niels From, currency strategist at Dresdner Kleinwort in Frankfurt.
At 1200 GMT, the dollar was up 0.3 percent on the day against the yen at 106.95 yen and the euro was up 0.4 percent against the Japanese currency to 158.45 yen. The euro edged up 0.1 percent to $1.4817, coming back down from a two-month high of $1.4956 on Friday and a record peak of $1.4966 struck in November.
The dollar index, a measure of the greenback's value against a basket of six major currencies, was unchanged at 75.45. The dollar was hit by two hefty interest rate cuts from the Federal Reserve last month, along with fears of a US recession and the potential for more US financial firms to suffer credit losses from problems at bond insurers.