The yen's three-day rally stalled on Thursday as a rebound in stocks eased concerns about the US high-risk mortgage market and prompted investors to borrow the Japanese currency again to fund carry trades.
The dollar steadied versus the euro, with markets awaiting the outcome of a two-day Federal Reserve meeting later in the session. The bank is seen holding rates at 5.25 percent and its statement will be scrutinised for clues on future policy.
Softer US data this week had shifted investor sentiment back towards the next Fed move being a cut rather than a hike, although most see rates on hold for the rest of the year.
The Australian and New Zealand dollars jumped against the yen as investors moved back into carry trades, in which low-yielding currencies are borrowed to fund higher-return investments.
"We're just moving in response to global markets after some fragility in the past few days. The market is now looking at equities in the States to see if the gains can be maintained. Then its a question of what the Fed is going to say later on," Mellon Bank head of currency research Ian Gunner said. By 1149 GMT, the dollar was steady at 122.86 yen, stabilising from a two-week low of 122.21 hit in the previous session according to Reuters data.
The euro was up 0.2 percent at 165.54 yen, edging back towards last week's record high at 166.95 yen, and little changed from late New York trade at $1.3463.
The yen had rebounded from multi-year lows versus major currencies this week after risk appetite was dented by falling equities, rising global volatility and worries that problems in the US subprime loan market could start to hurt the broader economy. The yen's gains were accentuated after Japanese, New Zealand and South Korean officials voiced concern about its weakness.
The higher-yielding New Zealand dollar gained the most against the yen, rising 1.2 percent to 94.51 yen, crawling back towards a 20-year high hit late last week. The Australian dollar climbed 1 percent to 103.92 yen, moving towards a 16-year peak hit last week.
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