FOREX -Yen edges higher, gets respite from recent selloff
* Fall in Tokyo shares provides pretext to buy the yen
* Yen pulls away from 5-year lows vs dollar and euro
* Nikkei and dollar/yen have tended to move in lockstep
SINGAPORE, Jan 6 (Reuters) - The yen edged higher on Monday and pulled away from recent five-year lows versus the dollar and the euro, with traders using weakness in Tokyo stocks as a pretext to buy the Japanese currency.
Although Japanese equities often take cues from moves in the yen, the correlation can work the other way as well.
Currency traders often look to moves in the Nikkei share average for clues on the near-term direction of the Japanese currency, because the yen's moves tend to be inversely correlated to swings in the Nikkei, with the yen tending to rise when Tokyo shares fall.
Traders and analysts said the Nikkei's 2 percent drop on Monday helped spur yen-buying including some short-covering in the Japanese currency.
"Long positions in the Nikkei are being taken off and it looks like the currency market is getting sideswiped by that move," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
The dollar fell 0.5 percent to 104.38 yen, pulling away from a five-year high of 105.45 yen set on Thursday, its strongest level versus the Japanese currency since October 2008.
A trader for a European bank in Tokyo said he thought that the dollar would stay on firm footing in January despite its drop against the yen on Monday, adding that the greenback may trade between 104 yen and 106 yen in the near term.
He added that the dollar could, however, see a bit of a dip against the yen in February if Japanese equities falter in anticipation of possible headwinds from Japan's sales tax increase, which is set to take place in April.
The euro slid 0.5 percent to about 141.79 yen, down from a five-year high of 145.67 yen set in late December.
The weakness in Tokyo shares was "enough to again flush out longs in euro/yen, sterling/yen, and Aussie/yen," said a trader for a Japanese bank in Singapore.
Sterling/yen fell 0.7 percent to 170.85 yen, pulling away from a five-year high of 174.84 yen set on Thursday, while the Australian dollar shed 0.4 percent to 93.36 yen.
Against the dollar, the euro held steady near $1.3585 , staying well below a two-year high of $1.3894 set on trading platform EBS in late December.
The dollar index stood at 80.860, hovering near a one-month high of 80.895 set on Friday.
The first full trading week of the year could offer investors some more clues about the dollar's direction in the months ahead.
The minutes of the U.S. Federal Reserve's December policy meeting will be released on Wednesday. Central bank policy makers decided at that meeting that they would begin to pare stimulus, and cut asset purchases by $10 billion to $75 billion a month. The minutes could hint at the timing and pace of any further reductions to the Fed's stimulus.
Friday will bring the December U.S. payrolls report, which could suggest whether domestic job growth is strong enough for the Fed to continue tapering its asset buying.
In a speech on Friday, Fed Chairman Ben Bernanke, who steps down as head of the U.S. central bank at month's end, gave an upbeat assessment of the U.S. economy in coming quarters.
But he tempered the good news in housing, finance and fiscal policies by repeating that the overall recovery "clearly remains incomplete" in the United States.
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