The report dragged down shares across Asia and sapped investors' risk appetite. "The perceived strengthening of the US economy was one factor pushing up the dollar in recent weeks," said Masashi Murata, senior forex strategist at Brown Brothers Harriman. Continuing concerns about the US "fiscal cliff" also added to the perceived safe-haven appeal of the yen. The dollar shed about 0.2 percent to trade at 82.07 yen after earlier dropping as low as 82.04 yen, moving further away from a 7-1/2 month high of 82.84 yen hit last month.
The yen has slipped in recent weeks on expectations of pressure on the Bank of Japan for further easing following a December 16 election, campaigning for which officially began on Tuesday. Shinzo Abe, leader of the main opposition Liberal Democratic Party (LDP) is the front-runner to be Japan's next prime minister, has called on the BOJ to take more drastic easing steps. His suggestions included setting an inflation target of 2 percent, embarking on "unlimited easing", or even cutting interest rates to zero or below.
"The yen weakened because of Abe, but the short-term story is over. Traders trade every day, the market moves every day, and there is a limit to how long the market can keep trading on the same factors day after day," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo. The yen's rise against the dollar on Tuesday also bolstered it against the euro, with some investors locking in gains after the European unit rose on Monday on positive news on the region's debt crisis.
Against the yen, the euro slipped about 0.2 percent to 107.16 yen, after rising to a seven-month high of 107.67 yen on Monday. The euro last stood at $1.3058, steady from late US levels on Monday, when it rose as high as $1.3076, its highest level since October 22. Against the US dollar, the Aussie rose 0.2 percent to $1.0428.