TOKYO, Japan - The dollar strengthened against the yen on Wednesday as upbeat data helped lift sentiment for the global economic picture, but caution remained ahead of US payroll figures later this week, dealers said.

The dollar fetched ?84.31 in Tokyo morning trade, up from ?84.22 late Tuesday in New York. The euro edged upward to $1.2683 from $1.2681 in New York and to ?106.90 from ?106.80.

Risk appetite improved after Australia posted better-than-expected growth for the April-June quarter while the HSBC China Manufacturing Purchasing Managers Index, a gauge of nationwide activity, resumed expansion after contracting in July, dealers said.

"Yen buying sentiment against the dollar subsided temporarily and some players were buying back the dollar following its recent losses," said Yusuke Hosokawa, head of forex at Chuo Mitsui Trust Bank.

"But the dollar's rebound should be limited because another wave of yen-buying is likely to emerge anytime in the future," Hosokawa said.

Market players were also reluctant to take long positions ahead of August unemployment figures to be released in the United States on Friday, he added.

"The market's main concern is still the US economy."

The yen has remained strong despite the Bank of Japan's plan to expand a multi-billion-dollar loan scheme to boost liquidity, amid hopes it would take the heat out of the Japanese currency, which is off a 15-year high against the dollar.

But markets have taken a dim view of Japan's monetary and government stimulus plans, and the strong yen continues to cast a shadow over the export sector that is key to the Japanese economy's health.

Wednesday's yen-buying sentiment was also supported by expectations that the Japanese government is unlikely to intervene into the market immediately to cap the currency's strength, dealers said.

"Even if the finance ministry intervenes, the impact should be very limited," Hosokawa said. "Concerns about Japan's intervention are fading in the market."

Japan has not conducted market intervention since March 2004.

The market shrugged off the latest ructions in Japanese politics, a day after political heavyweight Ichiro Ozawa confirmed his bid to challenge Prime Minister Naoto Kan for the premiership, dealers said.