* Dollar stays weak after biggest day fall in 3 years vs yen
* U.S. jobs data seen key for outlook for Fed policy
* Weak number could see dollar drop towards 93 yen: analyst
* Dollar seen recovering on an in-line or strong data
By Jessica Mortimer
LONDON, June 7 (Reuters) - The dollar was weak and vulnerable on Friday, a day after its biggest one-day fall against the yen in three years and before jobs data that could push the U.S. currency lower if it comes in below forecast.
U.S. non-farm payrolls at 1230 GMT are expected to show a 170,000 rise in May, according to a Reuters poll.
But recent data has raised concern the jobs number could be weak and lessen the prospect of the Federal Reserve scaling back asset purchases any time soon. This would weigh on the dollar.
The Fed has said it will maintain its bond buying until it sees a significant improvement in the labour market.
The dollar was last at 96.93 yen, having dropped to a seven-week trough of 95.55 yen, nearly 8 percent below the 4 1/2-year peak of 103.74 hit on May 22.
“A strong number would highlight the risk of tapering as soon as September and would be dollar positive, but if we get a number around 100-120,000 then this could mean the Fed would rather wait,” Citi G10 currency strategist Valentin Marinov said, adding 93 yen “could be on the cards” if the data was weak.
Recent weaker U.S. data has prompted investors to pare back their very hefty bullish bets on the dollar placed on expectations the Fed will soon tighten monetary policy.
But analysts said the dollar’s very steep falls meant it could need a very disappointing number to push it even lower.
“The market is now quite cautious and a number even matching consensus could see the dollar get a bit of a bid,” said Daragh Maher, currency strategist at HSBC.
The dollar pared some of its losses after Japan’s Government Pension Investment Fund said it would increase its holdings of riskier assets such as foreign equities, while cutting down on domestic government bonds.
The decision could support Japanese equities, whose recent heavy falls have weakened dollar/yen.
“Japanese exporters were hoping the dollar-yen would stay in a range between 95 to 100, so when it breaks 97 they panic a bit. They haven’t hedged up to now so they’re worried that it won’t recover to this rate for a while,” said Yoshio Takahashi, currency strategist at Barclays in Tokyo.
Against a currency basket the dollar was down 0.1 percent at 81.494 but off Thursday’s three-month low of 81.077.
The euro steadied against the dollar and was last at to $1.3242, having hit a three-month peak of $1.3306 on Thursday after European Central Bank President Mario Draghi provided no hints that further monetary easing was imminent.
The euro was down 0.4 percent at 127.92 yen, having earlier hit 126.775 yen, its lowest since mid-April.