The yen was higher in late morning trade on hedging by local corporations of their US assets and income, and some talk of repatriation of funds due to worries over the government's bad-loan plans, dealers said.
Some dealers said the plans to deal with non-performing loans by Financial Services Agency chief Heizo Takenaka would likely damage banks' balance sheets, perhaps forcing them to repatriate overseas assets.
However, others noted that Japanese financial institutions have already closed many of their foreign operations.
Meanwhile, market players noted some wild rumours that Takenaka will be fired, with strong opposition to his plans from the ruling Liberal Democratic Party.
"Basically the dollar is a bit heavy. Major Japanese corporations want to sell at 124.70-125 to hedge their US assets," said Mitsuru Sahara, dealer at UFJ Bank.
"The sentiment is the same. The US stock market is firm; in contrast Japan's fundamentals are not very good still," he said.
"There are rumours Takenaka will be fired soon, so if the government is in chaos then the yen (should be) weakening. But I think PM Koizumi is protecting strongly Mr Takenaka," Sahara said, stressing he does not believe the rumours.
Some dealers said Japanese banks may be selling overseas assets to beef up their balance sheets.
"The Japanese are selling overseas equities and bonds ... so the yen is stronger," said a trader at Barclays Capital, who also noted the rumours about the resignation of Takenaka.
"Data today shows that Japanese are bringing money back home. It does seem even if there has not been an official command Japanese are bringing investments back home," said the dealer, who declined to be identified.
"The big focus for a lot of the funds is whether Japanese banks will be forced to repatriate funds to manage their balance sheets."
However, UFJ's Sahara downplayed any likely impact here.
"The government wants a lot of money in Japanese banks to strengthen the BIS ratio but Japanese banks have already sold most of their foreign assets so there are no big assets left," he said.
Tokyo 11.50 am Sydney 9.30 am New York 4.18 pm
Dollar
yen 124.18 down from 124.58 124.59
sfr 1.5038 up from 1.5036 1.5036
Euro
usd 0.9756 up from 0.9749 0.9764
stg 0.6300 unchanged 0.6300 0.6306
yen 121.15 down from 121.45 121.64
sfr 1.4671 up from 1.4658 1.4680
Sterling
usd 1.5485 up from 1.5476 1.5483
yen 192.29 down from 192.73 192.90
sfr 2.3286 down from 2.3290 2.3280
Australian dollar
usd 0.5534 unchanged 0.5534 0.5530
stg 0.3572 down from 0.3575 0.3571
yen 68.72 down from 68.94 68.89
© AFX News