The yen firmed against the dollar and euro on Thursday with traders reluctant to tilt positions too far either way ahead of a Group of Seven meeting at the weekend. The yen, which hit a five-month low against the dollar earlier this week, made up some of its losses in the previous session on position unwinding ahead of the G7 finance ministers' meeting in Singapore. Traders have been wary that the low-yielding yen might become a focal point at the gathering after a German finance ministry official said last week that its recent weakness would be discussed, spurring a rise in the Japanese currency. With pre-event jitters making traders cautious, there was little reaction to a Reuters survey showing that business confidence among Japanese manufacturers worsened in September from three months before. Traders said they were sceptical about whether the yen would be a focal point at the G7 even if it comes up for discussion. Nevertheless, they said they were reluctant to sell the yen actively at this juncture. "The market sees it as a done deal that...it (the yen) probably won't be mentioned in the communique," said a dealer at a major Japanese bank. Despite such thinking, which has been reinforced by the fact that Japan will chair the G7 meeting on Saturday, the yen seems likely to be supported for now as market players look to unwind some short yen positions, the dealer said. The dollar stood at 117.53 yen as of 0530 GMT, down from around 117.70 yen in late U.S. trading. The euro was little changed at $1.2689 . Against the yen, it eased to 149.10 yen from around 149.30 yen in late New York. Comments by U.S. Treasury Secretary Henry Paulson on Wednesday,saying China must swiftly adopt a more fully market-based economy and flexible currency exchange rates or risk losing its ability to control its economy, helped spur some short covering in the yen in U.S. trading, traders said. After attending the G7, Paulson is due to visit China next Tuesday. The yen is often traded as a proxy for the Chinese yuan. A Japanese Ministry of Finance official said on Thursday China's yuan regime should be more flexible, saying that the yuan should reflect more its reference of basket currencies. The MOF official also said there were no plans for the G7 to issue an annex statement on global imbalances. A deputy head of China's central bank said on Thursday China should push forward with reform of the yuan exchange rate mechanism and make the yuan more flexible. Since it was revalued in July 2005 and allowed to float within managed bands, the Chinese currency has risen as much as 2.18 percent to a peak of 7.9367 yuan per dollar on Sept. 5.