By Christina Fincher
The yen steadied near recent eight-month lows against the dollar and the euro on Tuesday as traders awaited an interest rate announcement by the U.S. Federal Reserve later in the day. Markets are widely expecting a quarter-point cut -- the Fed's 11th easing this year -- after a dismal jobs report on Friday dampened hopes of an imminent U.S. rebound.
Traders are also braced for the release of Japan's closely-watched "tankan" business sentiment survey overnight, with recent grim Japanese economic data having prepared markets for the worst.
"Markets are taking a breather ahead of the Fed announcement," said Mitul Kotecha, head of global currency research at Credit Agricole Indosuez.
"The trend is set for a weaker yen, but both dollar/yen and euro/yen have already come a long way in a short space of time and need fresh momentum to move higher."
The dollar stood at 126 yen at 1255 GMT, within striking range of this year's peak at 126.82 but unable to match Monday's high of 126.38.
Concern Japan could be facing a protracted recession deepened on Monday when private-sector machinery orders were reported at a 14-year low. The data followed news last week that Aoki Corp has become the 13th listed Japanese company to go under this year.
The euro pushed to new eight-month highs around 112.40 yen in early trade but had slipped back to 112.25 yen by the European midsession, little changed on the day.
"Economic weakness in Japan is now fully priced in and the market needs to see either a policy shift or a new crisis in Japan's financial sector to push the yen lower," said Steven Saywell, currency strategist at Citibank.

FED IN SPOTLIGHT
The euro was also steady against the dollar, around $0.89 , the middle of its one cent trading range of the past week, as traders took to the sidelines ahead of the Fed's rate decision at 1915 GMT.
Most dealers questioned by expect a quarter-point cut in the Fed funds rate to 1.75 percent -- its lowest level in four decades.
Analysts said markets would scan the Fed statement accompanying the rate decision for clues as to how soon the U.S. economy will recover.
"There's not a great deal of uncertainty about the outcome -- 25 basis points is expected," said Audrey Childe-Freeman, economist at CIBC World Markets. "Perhaps more important will be whether the Fed keeps an easing bias."
U.S. unemployment hit a six-year high of 5.7 percent in November and revised third quarter gross domestic product was down 1.1 percent -- the worst quarterly performance for the world's largest economy since the first three months of 1991.

JAPAN WOES
With bearish economic prospects still weighing on the yen, the much talked about issue of foreign bond buying resurfaced on Tuesday.
Bank of Japan board member Nobuyuki Nakahara urged the BOJ to buy foreign bonds -- a policy that has been widely touted as a means of weakening the yen and giving the economy a fillip via cheaper exports.
The yen slipped to session lows in the wake of Nakahara's comments, but selling momentum soon fizzled out in a lethargic market.
"The dollar failed at 126 yen earlier this year and seems to be losing steam," said a trader at a Japanese bank in London. "Markets are reluctant to trade yen ahead of the tankan and I think we could see something of a 'buy the rumour, sell the fact' reaction."
The dollar has already gained more than 10 percent against the yen this year, while the euro has racked up gains against the Japanese currency of more than four percent.