By Hiroyuki Kachi 
 

The dollar lost 0.4% against the yen Tuesday, as a lackluster Tokyo stock market and jaw boning by a Japanese government adviser took the legs from the greenback's overnight rally, pushing it below the Y120 mark.

Around 0450 GMT, the dollar was at Y119.63 after reaching as high as Y120.27 midmorning. That compared with Y120.15 late Monday in New York.

"We wish we could have seen the (Nikkei) stock average breaking through the 19000 mark," said a senior Japanese bank dealer, noting that the Nasdaq Composite climbed above the 5000-point level for the first time in almost 15 years Monday.

But petering momentum in the Japanese shares put downward pressure on the greenback, helping drag it as low as Y119.58. The benchmark Nikkei index was down 0.2% at 18794.94 midday.

"I don't feel the dollar-yen trade pair has any moving initiatives of its own," said Kyosuke Suzuki, head of FX and money market sales department at Societe Generale in Tokyo. Instead, the dollar-yen seems largely dependent on other factors such as stock market movements, he added.

Market participants also cited comments by an economic adviser to Prime Minister Shinzo Abe as a factor that gave an extra slide to the dollar against the yen.

Etsuro Honda told The Wall Street Journal that he was skeptical the dollar had potential to rise further from its current levels around Y120 against the yen. Mr. Honda also said Japan's central bank should hold fire on extra easing measures for some time to ensure the economy doesn't "overheat."

"The market has become nervous about comments by major government figures," said Mr. Suzuki.

The Japanese bank dealer said the dollar's falloff looks only temporarily, as money continues to flood into the stock markets amid global monetary easing--a situation that is set to continue for a while.

"The dollar-yen pair looks set to ratchet up," but as the U.S. currency lacks the kind of momentum against the Japanese currency it showed from late October last year, any upward moves will likely take place slowly, with the pair eventually reaching Y121.50 or more in April or May, the dealer added.

Meanwhile, the Australian dollar strengthened after the Reserve Bank of Australia's decision to keep its benchmark interest rate unchanged at a record low 2.25% to avoid stoking an overheating housing market that risks derailing a fragile economic recovery.

The Aussie rose to Y93.64 from Y93.33 and gained to $0.7826 from $0.7769.

The euro was at $1.1200 from $1.1181, while the common currency was at Y133.95 from Y134.40.

The WSJ Dollar Index, a measure of the dollar against a basket of major currencies, was down 0.27% at 86.02.

 
Interbank Foreign Exchange Rates At 23:50 EST / 0450 GMT 
 
                          Latest       Previous   %Chg    Daily    Daily    %Chg 
Dollar Rates                             Close             High     Low    12/31 
 
USD/JPY Japan           119.62-63      120.13-14  -0.42   120.27   119.59  -0.08 
EUR/USD Euro           1.1197-200      1.1183-86  +0.13   1.1201   1.1177  -7.44 
GBP/USD U.K.            1.5380-85      1.5362-67  +0.12   1.5383   1.5356  -1.26 
USD/CHF Switzerland     0.9559-63      0.9583-87  -0.25   0.9588   0.9558  -3.84 
USD/CAD Canada          1.2512-17      1.2534-39  -0.18   1.2545   1.2513  +7.68 
AUD/USD Australia       0.7825-29      0.7763-67  +0.80   0.7842   0.7752  -4.21 
NZD/USD New Zealand     0.7540-46      0.7507-13  +0.44   0.7547   0.7502  -3.23 
 
Euro Rates 
 
EUR/JPY Japan           133.95-99      134.31-35  -0.27   134.44   133.88  -7.57 
 
Source: ICAP PLC 
 

Write to Hiroyuki Kachi at Hiroyuki.Kachi@wsj.com