The dollar recovered early losses on Tuesday as the yen came under pressure ahead of a special central bank meeting while Asian shares were steady as investors paused after Monday's bounce.
In Australia, the Aussie dollar rose then quickly retreated after the Reserve Bank of Australia raised interest rates for a third time in as many months, by 25 basis points to 3.75 percent.
The central bank said it would gradually withdraw monetary stimulus, reducing the likelihood of another rate rise in February.
The yen drew selling on news the Bank of Japan would hold a special policy meeting at 0500 GMT and Japanese government bond futures hit a one-year high as the market expected the BOJ would announce a return to quantitative easing to support the economy and help tackle deflation.
"Investors are finding it hard to buy the yen further as the tone of remarks from Japanese authorities has changed recently," said Kazuyuki Takami, senior manager of foreign exchange trading at Bank of Tokyo-Mitsubishi UFJ in Tokyo.
Japanese officials have sounded increasingly worried about the yen's strength, which will hurt exporters and potentially aggravate deflation.
Japanese shares turned positive on news of the meeting, with the Nikkei index up nearly 2 percent, while the yen's weakness helped the dollar recover slim early losses and edge up 0.05 percent against a basket of currencies.
Australian share prices were flat after the interest rate decision and stock markets across the region outside Japan were also steady as fears about Dubai's debt woes continued to fade but there were no new developments to push shares higher after they bounced back on Monday, analysts said.
Dubai World, the holding company at the heart of the Dubai crisis, on Monday announced a restructuring plan involving $26 billion in debt. However, the Dubai government said it was not responsible for Dubai World's debts, dealing a blow to creditors' assumptions that the Arab emirate would guarantee the government-controlled conglomerate's liabilities.
"Dubai is still a risk but most of Asia has very limited exposure to Dubai other than isolated banks. So people may want to avoid the banks but most other companies are okay," said Francis Cheung, an equities strategist at CLSA in Hong Kong.
Singapore's DBS Group, Southeast Asia's top lender, said it had $1.28 billion exposure to Dubai but its shares were steady by late morning.
The MSCI index of Asia Pacific stocks traded outside Japan was up 0.4 percent while the Thomson Reuters index of regional shares was down 0.4 percent.
QANTAS JUMPS
Asian markets were encouraged by gains on Wall Street where the Dow Jones edged up 0.3 percent and there was good news after the closing bell as quarterly profits from retailer Guess Inc beat expectations and forecast holiday season earnings would exceed Wall Street estimates.
Economic data out of Asia, including China purchasing managers' indexes and a near 20 percent rebound in South Korean exports last month, indicated regional recovery was under way but had largely been factored into share prices.
Shares in Australian carrier Qantas, however, jumped 3.5 percent after the airline announced a 7 percent rise in October passenger numbers.
The oil price was steady at $77.30 a barrel after climbing 1.6 percent on Monday on news that Iran had restructured its naval forces for operations in the event of a conflict and had detained five Britons after their yacht strayed into Iranian waters.
Gold dipped slightly to $1,178.45 an ounce, but was not far off its New York close at $1,179.10.
