The yen drifted lower against the dollar on Thursday, eating into some of its gains made the
previous day, but market activity slowed ahead of the Easter holiday weekend.
Volatility in stock markets has been buffeting investors' risk appetite, prompting them to cut bets built in recent weeks on higher-yielding currencies like the Australian dollar and helping the yen recover from multi-month lows hit this week.
But while Asian share markets and S&P futures rose on Thursday, with Japan's Nikkei average heartened by an economic stimulus plan, the currency market was unwilling to build positions ahead of earnings reports by major U.S. banks next week.
Financial sector woes continued to dominate market thinking.
"The market overall is quiet before the Easter holiday and U.S. banks earnings," said one trader at a Japanese bank.
The U.S. government is testing how the largest U.S. banks would fare under more adverse economic conditions than are expected, in an attempt to assess the firms' capital needs.
But a source said earlier in the week the Treasury was planning to delay the release of any completed bank stress test results until after the first-quarter earnings season, in order
to avoid complicating the stock market's reaction.
The dollar rose 0.3 percent to 100.10 yen after falling about 0.8 percent on Wednesday. It rose as high as 101.45 yen on Monday to strike a six-month peak.
Traders said a 3.7 percent gain in the Nikkei index had prompted some light selling of yen back to 100 per dollar, with the two often moving inverse to each other.
The euro edged up 0.3 percent to 132.94 yen, well off a six-month high of 137.42 yen hit earlier this week. It eased 0.1 percent to $1.3265.
Data showed Japan's machinery orders, a leading indicator of corporate spending, unexpectedly rose in February, a rare positive sign as the country suffers its worst recession since World War Two.
The figure will be welcome news for the ruling party, which unveiled a record $154 billion stimulus plan on Thursday, equivalent to 3.1 percent of GDP..
Traders said expectations of the stimulus package helped the yen's rebound against the dollar and the euro in the past few days but investors would refrain from pushing it higher for now.
"Investors will remain cautious as they wait to see how effective this will be," said Kazuyuki Kato, treasury manager at Mizuho Trust & Banking Co Ltd.
Capital flows data showed foreign investors turned net buyers of Japanese stocks last week for the first time since late November and Japanese investors sold a net 2.11 trillion yen ($21.16 billion) of foreign bonds as they moved into the new financial year.
"That would suggest on the face of it that's yen positive but the price action in dollar/yen (last week) would tell you otherwise," said Sue Trinh, senior currency strategist at RBC Capital Markets in Sydney.
"There looks to be an interesting two-way tug-of-war between those who want to push dollar/yen higher on the back of the risk appetite story and the real money flows suggesting dollar/yen should actually go lower," Trinh said.
The Australian dollar slipped after data showed Australia shed jobs at the fastest pace in six years in March, fuelling expectations its central bank would have to cut interest rates again after a quarter point easing to a record low of 3.0 percent this week.
The currency initially dipped to $0.7051 but later rose 0.6 percent on the day to $0.7142.
