The yen was under pressure in early Asian trade on Tuesday on speculation that Bank of Japan might ease its policy later in the week while the euro held firm near four-month high against yen and the dollar.
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The dollar traded at 78.63 yen
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], little changed from late U.S. levels but way above a seven-month low of 77.13 yen hit only last Thursday.    "There's quite a lot of expectations about the BOJ's easing priced in now. The dollar/yen is unlikely to fall much ahead of the outcome of the BOJ's policy meeting" said a senior trader at a European bank, referring to the bank's two-day policy meeting starting later in the day.
The U.S. Federal Reserve's announcement last week of new asset buying program has spurred speculation that the Bank of Japan might look into policy easing to counter the effect of the Fed's stimulus.    Â
Also supporting the dollar versus the yen was rise in U.S. bond yields after the Fed's action. The 10-year U.S. bond yield stood near four-month high of 1.89 percent hit last week.
"The Fed's QE3 had been considered as the possible biggest reason to push the dollar against the yen. But now with U.S. bond yields rising on expectations the QE3 will boost the economy, buying in the yen has lost momentum," said Yunosuke Ikeda, senior FX analyst at Nomura Securities.
Bond prices fell and yields rose after the Fed's QE3 move on expectations of higher growth and possible inflation. Prices rebounded and yields gave up gains on Monday after the sharp moves of late last week.    Â
The yen might be undermined slightly also by concerns over anti-Japan protests in China, Japan's biggest trading partner, over a territorial dispute.
For now, the dollar/yen is capped at the bottom of cloud at 78.72 on the daily Ichimoku chart, though a break there could open the way for a test of the Aug 20 high of 79.66 yen, some market participants said.
The euro also stood at 103.20 yen
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], having rallied to four-month high of 103.858 yen on Monday. Against the dollar, the euro
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] fetched $1.3106, down slightly from late U.S. levels but still not far from a 4 1/2-month high of $1.3173 hit on Monday. The euro has rallied some nine percent from two-year low of $1.2040 hit in July when investors were deeply worried that the currency bloc might be heading for a break-up as borrowing costs of Spain and Italy had soared.
For the moment, the euro is supported by optimism that the European Central Bank's new bond buying scheme could help Madrid survive its debt crisis.
The euro's rise saw the dollar's index against a basket of currencies hovering near seven-month low.
The dollar index
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] stood at 78.95, near seven-month low of 78.601 hit on Friday. The Australian dollar traded at $1.0475, off six-month high of $1.0625 set on Friday, pressured by worries a slower growth in China would be putting a brake on the mining boom in Australia.
The immediate focus is on the minutes of the Reserve Bank of Australia's last policy meeting due at 0130 GMT.
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