Dollar edges up against yen as risk appetite returns

The dollar edged up 0.1 percent to 106.850 yen.

It had dropped nearly 1 percent overnight as U.S. Treasury yields retreated from four-year peaks.

The greenback was given some reprieve, however, as yields leveled off.

Japan's Nikkei rose 0.4 percent and MSCI's broadest index of Asia-Pacific shares outside Japan adding 0.9 percent.

The market focus was on whether equities could extend their gains should U.S. yields resume rising.

"For the dollar to attempt a run towards 108 yen again, global equities will have to show resilience even when long-term Treasury yields reach 3 percent," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

As recently as Feb. 16, the dollar touched a 15-month low of 105.545 yen when the steady rise in U.S. yields triggered volatility in the broader equity market.

The yen tends to be bought in times of market volatility, thanks to its perceived status as a safe haven currency.

"U.S. yields may have declined a little bit (from their peaks) but caution towards their recent rise and their negative impact on equities linger," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo. "The yen will attract demand under such conditions."

Benchmark Treasury 10-year note yields rose to a four-year high of 2.957 percent on Wednesday before dropping to as low as 2.904 percent on Thursday. It last yielded 2.928 percent.

The prospect of the U.S. government boosting debt issuance to fund expanded stimulus and the Federal Reserve hiking interest rates steadily this year are some of the factors that have contributed to the rise in yields.

The dollar index against a basket of six major currencies rose 0.2 percent to 89.865.

The index had reached a 10-day high of 90.235 on Thursday, from a three-year trough of 88.253 late last week, before its rally lost a bit of steam. It was on still on track to gain 0.9 percent on the week.

The euro slipped 0.2 percent to $1.2306 after gaining 0.4 percent the previous day. The common currency has lost 0.9 percent so far this week, following its ascent to a three-year top of $1.2556 on Feb. 16.

The yen showed little reaction to data which showed Japan's annual core consumer inflation rate was unchanged in January from the previous month, reinforcing views that the Bank of Japan remains distant from exiting its super loose monetary policy.

Japan's nationwide core consumer price index, which includes oil products but excludes volatile fresh food costs, rose 0.9 percent in January. The pace remained far from the BOJ's 2 percent inflation target.

The pound was a shade lower at $1.3947 following overnight gains of 0.3 percent. Sterling was en route for a weekly loss of about 0.5 percent.

The Australian dollar dipped 0.2 percent to $0.7828 after gaining 0.5 percent the previous day. The Aussie was on track for a loss of 0.85 percent this week.

The New Zealand dollar fell 0.5 percent to $0.7303 in the wake of the greenback's broader strengthening.