The euro edged up in Asia Tuesday after suffering a heavy sell-off in New York as Italian national elections left no clear winner, fuelling fears political instability could tip the eurozone back into crisis.
The result from Sunday's poll led markets watchers to fear that Rome could backtrack on some of its recent economic reforms that have been put in place to pay down its huge debts.
In morning Tokyo trade, the euro bought 120.90 yen and $1.3085 compared with 120.12 yen and $1.3065 late Monday in New York.
However, the European unit was still well below the 124.24 yen and $1.3197 in Asia on Monday, before the election results.
The dollar also fetched 92.52 yen, up from 91.92 yen in New York. However the greenback was also well off the 94.77 yen in Tokyo Monday as dealers banked on the yen's status as a safe haven during economic uncertainty.
"There is every reason to take the Italian election results seriously," National Australia Bank said in a note.
The result means Italian politics is in stalemate between right and left, while a new protest party -- the Five Star Movement -- calling for a referendum on the euro was the biggest gainer, creating dozens of new lawmakers and making it Italy's third political force.
Traders began to sell the yen again after Monday's rally in New York as they refocused on reports that Japan's Prime Minister Shinzo Abe would nominate Asian Development Bank chief Haruhiko Kuroda as the new Bank of Japan's new chief.
Kuroda has been a stern critic of the bank and his nomination was likely to open the door to more aggressive easing demanded by the new government, a key part of its plan to stoke the slumbering economy.
Abe and incumbent Masaaki Shirakawa, who is to step down next month, disagreed on policy matters with the under-pressure bank governor leaving the post about three weeks before the end of his term.
The pound strengthened to $1.5178 from $1.5131, but was still down from the levels above $1.52 before Moody's on Friday announced it had stripped London of its coveted triple-A debt rating, citing weak growth and rising debt.
Dollar trade was focused on the testimony to Congress later in the day by Federal Reserve Chairman Ben Bernanke, with hopes he will clarify the bank's policy direction.