The yen inched higher against the dollar after the Bank of Japan refrained from more easing on Tuesday, although many thought it would stay under pressure on expectation Tokyo would loosen policy later in April.
The yen was also sold by Japanese importers, traders said, whose purchases of fossil fuels have jumped as all but one of Japan's nuclear reactors have gone off line in the wake of the Fukushima nuclear disaster in March 2011.
With the economy still fragile and consumer inflation around zero, the pressure for more stimulus in Japan has not waned despite February's surprise easing, which helped the yen weaken more than 6% this year.
Hopes that the BOJ would take further easing steps when it issues economic outlook and price forecasts on April 27, helped the yen pull away from a one-month high against the dollar of 81.19 hit on Monday after weak U.S. jobs data.
The yen hit the session low of 81.87 early in the session, to subsequently bounce off the trough after the BOJ decision and last trade at 81.41, 0.1% above late New York levels.
The yen's long-term weakening trend was confirmed on Monday after the dollar failed to dip below support at 81.07, a 38.2% retracement of the dollar's rally since February.
To be sure, few market participants think that the yen could sustain the eye-watering pace of losses that helped fuel nearly 14-percent gains in Japanese stocks this year, as it remains vulnerable to bouts of short-covering.
Yen net shorts stood at 65,108 contracts in the week ended April 3, near the previous week's 67,622 contracts, which was the biggest net short position since July 2007
As the yen rose across the board after the BOJ's decision, the euro pulled away from session highs at 107.48 yen to last stand flat at 106.80, with some traders earlier citing stop-loss buying in the pair triggered by U.S. banks.
Chartists saw resistance for the euro emerging around 108.20, at the 38.2% retracement of its March-April fall, while the top of the Ichimoku cloud, at 106.20 on Tuesday, is an initial support after it held the previous session.
FED IN FOCUS
The euro was a shade stronger against the dollar, gaining 0.1% to $1.3120 and moving further away from a one-month low of $1.3033 hit on Monday.
A break of Thursday's $1.3165 high would see it target the top of the Ichimoku cloud at $1.3263, traders said.
Risk assets were reasonably resilient as a large number of investors seem to be wagering that soft U.S. payrolls data may bring forward the next round of quantitative easing.
Markets, however, will be looking at a raft of other Fed speeches this week for any hint of more easing, which would likely see the U.S. dollar fall to the benefit of risk currencies.
However, should the Fed signal the bar for further stimulatory policy remains very high, risk assets including the Australian dollar, could be hit hard.
The Aussie was supported at $1.0307 after China recorded a $5.35 billion trade surplus in March as exports grew faster than expected, customs data showed on Tuesday. It struggled to decisively pull away from a three-month low of 1.0243 hit last week, weighed down by soft local data, lingering fears about a hard landing in China and expectations for a cut in domestic rates next month.
