The euro and dollar firmed against the yen in Asian trade Tuesday despite continuing worries over European debt woes and the failure of US lawmakers to agree on a deficit-busting plan.
The euro traded at 103.87 yen in Tokyo trade, edging up from 103.83 yen late Monday in New York. The single currency stood at $1.3480 compared to $1.3494.
The dollar also firmed to 77.06 yen in Tokyo trade from 76.94 yen.
"There are still some stop-loss orders that aren't executed yet, so the pair (dollar/yen) may rise a bit more," one trader said.
Nobuyoshi Kuroiwa, deputy general manager of the forex team at Hachijuni Bank, said the move was also in part a sensitive reaction to mixed reports about remarks made by Finance Minister Jun Azumi.
Azumi during a parliamentary panel dismissed an idea that Japan could buy large amounts of foreign bonds as a form of intervention.
The proposal, floated by former Bank of Japan official Kazumasa Iwata, is that the government establish a yen-denominated fund worth 50 trillion yen to buy overseas securities. This would necessarily involve selling the yen.
Azumi said "there is a high possibility (such foreign-bond buying) would be tantamount to currency-market intervention," and that the idea of foreign bond purchases "doesn't fit well with our thinking," since the purpose of intervention is to counter disorderly market moves.
Traders said they were initially confused by the way the remarks were reported. At first they thought Azumi was for the deal, which turned out not to be the case.
"We jumped on the greenback, but were forced to dump it seconds later," said a senior dealer, according to Dow Jones Newswires.
Japan intervened in the market unilaterally in late October, the first time since August, after the dollar hit a post-war low of 75.32 yen.
The euro had fallen against the dollar in New York, in a cautious market the day after an election victory for Spain's conservatives and as investors fretted about debt in the United States and Europe.
"The sovereign-debt problems in Italy and Spain could remain a major theme for the currency market," Kengo Suzuki, forex strategist at Mizuho Securites, said.
In Europe, Spain's right stormed to its biggest election victory ever on Sunday, winning over voters but sending Spain's stockmarket falling and the cost of its debt surging over worries it will not stick to its bailout programme commitments.
Market nerves were also jangled after a US Congress "supercommittee" announced Monday it had failed to reach a debt deal, after angry partisan battles over the best way to revive the economy.
It confirmed widespread expectations that the 12-member committee would fail in its mission to cut US deficit by $1.2 trillion over 10 years amid political feuds over tax hikes on the rich and cuts to social spending.
Azumi said Tuesday financial markets were "very disappointed" over the failure of the US congressional committee to reach a deal.
The benchmark Nikkei 225 index at the Tokyo Stock Exchange, which closed at its lowest level since March 2009 on Monday, opened down 1.01 percent.
The index then recovered some lost ground as the dollar rose, closing down 0.40 percent.
The dollar was largely higher against other major Asian currencies.
It rose to 1,146.90 South Korean won from 1,138.80 on Monday, to Sg$1.3017 from Sg$1.2990, and to 31.18 Thai baht from 31.03.
The US unit also firmed to 9,115.00 Indonesian rupiah from 9,050.00 and to Tw$30.31 from Tw$30.25. It was flat at 43.33 Philippine pesos.