TOKYO -- The yen stayed near a seven-month low against the dollar in Asian trade Thursday amid growing fears that Japan is entering into a recession, dealers said.

The dollar was at 109.58 yen in Tokyo afternoon trade against 109.76 in New York late Wednesday, when it touched a seven-month high of 109.87 yen.

The euro firmed to $1.5434 from $1.5408 while holding steady at 169.13 yen.

"Investors are selling off Japanese shares and currencies on signs the country has entered into a recession," said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank.

Data in recent months have signalled weaker conditions. Analysts expect gross domestic product figures due next week to show Asia's largest economy contracted in the second quarter of 2008.

"Markets also feel hopeless about the political situation and whether a group of ageing political leaders will be able to manage this," Muramatsu said, referring to a new cabinet installed last week by Prime Minister Yasuo Fukuda.

Investors also showed concern after Japan's core machinery orders fell 2.6 percent in June, dropping for the first time in three months, although by less than expected.

The euro was also in focus ahead of a European Central Bank (ECB) meeting later in the day, where interest rates were expected to be left on hold at 4.25 percent, dealers said.

Market players were waiting to see whether the ECB will recognize worsening economic conditions in the eurozone in its post-meeting statement, said Muramatsu.

Koji Fukaya, senior currency analyst at Deutsche Securities, told Dow Jones Newswires that the ECB "will probably shift its focus more to the economy's weakness" and away from the continent's accelerating inflation.

"Recent European economic data have significantly deteriorated," he said. "Moreover, adjustments have started in commodities markets," causing natural resources prices to decline globally and relieving inflation pressures."

A sharp fall in German industrial orders Wednesday boosted speculation that the ECB could become keener to cut interest rates in future months despite inflationary pressures.

Germany accounts for around one third of eurozone output, and the decline in orders sparked fears that the 15-nation eurozone as a whole could be moving toward recession.

The Bank of England was also expected to keep interest rates on hold at 5.0 percent at a meeting later Thursday, as the domestic economy falters under the impact of the credit crunch.

Against Asian currencies, the dollar rose to 9,103.00 Indonesian rupiah from 9,068.00 on Wednesday, to 1.3836 Singapore dollars from 1.3772 and to 30.83 Taiwan dollars from 30.79.

It held steady at 33.65 Thai baht, at 1,016.00 South Korean won and at 43.81 Philippine pesos.