Yen steadies as stock market worries ease

The yen steadied on Friday after U.S. share prices managed to hold up despite sharp drops in other stock markets on worries about an overheating Chinese economy, calming fears of a massive unwinding of yen carry trades.

The yen rose broadly on Thursday after strong Chinese economic growth data triggered fears of interest rate hikes, hitting Asian stock markets and prompting investors to cut back on short positions in the Japanese currency.

"Movements in stock markets continue to be the main factor in the currency market, although the Dow's solid performance overnight soothed worries about yen carry trades a bit," said Tsutomu Soma, a senior manager at Okasan Securities.

In the carry trade, investors borrow the lowyielding Japanese currency to buy higheryielding assets abroad.

The Nikkei rose 0.47 % to 17,452 in early trade on Friday.

The dollar was at 118.60 yen, a bit higher from late New York trade on Thursday.

The euro hit a two-year high of USD 1.3629 against the dollar in early trade as expectations that the European Central Bank will boost interest rates in coming month supported the single currency.

Yen not too weak ??“ Watanabe says

Japan's economy is on the road to recovery and the yen, already beginning to reflect that, is at acceptable levels, the country's top financial diplomat Hiroshi Watanabe told Reuters on Thursday.

"Our economy is on the right track and that should be reflected in the market. This is going on at the moment. We have confidence in the market on this," Watanabe told a news conference in the United Arab Emirates capital Abu Dhabi.

???The yen is not too weak just now. At times it goes up and comes down. It is marketdetermined," Watanabe, vice finance minister for international affairs, said as he arrived for the news conference.

"We have no worries about the yen from a domestic perspective. The yen is getting better," he said.

EUR/JPY traded between 161.12 and 161.74

USD/JPY traded between 118.25 and 118.77