By Anirban Nag
LONDON, April 26 (Reuters) - The yen rose on Tuesday, moving away from multi-week lows against the dollar and euro as prospects of more monetary stimulus this week from the Bank of Japan remained unclear.
With policy decisions from the Federal Reserve and the BOJ due within hours of each other, many investors are likely to stay on the sidelines, traders said. The Fed, which is expected to leave interest rates unchanged, will announce its decision on Wednesday while the BOJ concludes its two-day meeting on Thursday.
Speculation of further easing by the BOJ sent the yen lower last week, but it staged a recovery on Tuesday. The dollar fell 0.4 percent to 110.80 yen, retreating from a three-week high of 111.90 hit the previous day. The euro fetched 124.75 yen , down 0.4 percent and off Monday's three-week peak of 125.525.
The yen lost 2.1 percent in value against the dollar on Friday - its biggest one-day fall since BOJ Governor Haruhiko Kuroda announced a second round of monetary easing in October 2014. The trigger was a Bloomberg report that said the BOJ was considering applying negative rates to its lending programme for financial institutions.
"The yen lost a lot of ground on Friday, so there is some speculative unwinding of positions ahead of the BOJ meeting," said Yujiro Goto, currency strategist at Nomura.
"With dollar/yen above 110 yen and the Japanese stock market stabilising, there is a chance that the BOJ may hold back and disappoint those anticipating aggressive easing."
The BOJ introduced negative rates earlier this year, charging commercial banks 0.1 percent interest on a small portion of their reserves. It has run an asset purchase programme since April 2013.
These measures have so far failed to generate the inflationary pressures needed to reach the central bank's 2 percent inflation target by the first half of fiscal 2017, fuelling expectations that the BOJ may ease again.
"The market is getting more nervous ahead of the BOJ, and no one wants to be caught short either way on Thursday," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.
"There are some position adjustments around the month-end, and also ahead of Golden Week," he said, referring to a series of Japanese holidays that begin on Friday.
Markets in Japan will be open as usual on Monday and Friday next week, but many participants often take the entire week off.
Sterling rose to 10-week highs as prospects of Britain leaving the EU ebbed. The pound rose to $1.4535, while the euro edged down 0.4 percent to 77.54 pence. (additional reporting by Lisa Twaronite; editing by John Stonestreet)
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