* Yen enjoys rare rally as short positions are squeezed
* Euro stays pinned near 4-mth lows vs USD on Cyprus uncertainty
* Aussie dollar among best performers, up near $1.0460
By Ian Chua
SYDNEY, March 22 (Reuters) - The yen held firm on Friday as investors scrambled to cover bearish positions after the new Bank of Japan governor played down the chances of an emergency meeting, while dour economic news and Cyprus debt crisis kept the euro pressured.
The dollar traded at 95.03 yen early in Asia, having fallen more than 1 percent on Thursday, while the euro was at 122.54 yen, down from Thursday's session peak of 124.38.
The moves came after new BOJ governor, Haruhiko Kuroda, was coy about whether he would call a meeting ahead of the scheduled April 3-4 policy review. At his inaugural media conference on Thursday, Kuroda said the bank was ready to use all means available to beat deflation.
Markets, which had been speculating on an emergency meeting, were quick to reverse short positions that saw the yen rise across the board.
Yet, the Japanese currency remained contained in a well-worn range against the euro and was not far off a 3-1/2 year trough against the greenback of 96.71 set last week.
The U.S. dollar is up around 9 percent against the yen this year, while the euro is 7 percent higher, highlighting the extent of bearishness already priced in.
Over the next few days, yen weakness could be tempered by repatriation flows as Japan's fiscal year-end on March 31 looms, traders said.
"We see further rallies above 96.00 meeting with increased resistance, while over the coming months we expect USD/JPY to eventually slide back towards 90.00," said Vassili Serebriakov, strategist at BNP Paribas.
While Japan has laid the groundwork for some serious action to stimulate its economy, Cyprus continued to scramble for a solution to its debt crisis.
Trying to speed things along, the European Union gave Cyprus till Monday to raise the billions of euros it needs to secure an international bailout. Failing that, it could face a collapse of its financial system that could push it out of the euro currency zone.
Not helping sentiment, Standard & Poor's cut Cyprus credit rating deeper into junk status and a survey showed the euro zone's economic downturn has deepened this month, even before Cyprus's bailout debacle.
Euro bulls may have beat a hasty retreat but they have not completely given up on a last minute deal to save Cyprus. The euro eased to $1.2892 but managed to keep off a 4-month trough around $1.2843 set on Tuesday.
Also helping the euro, demand rose and costs fell at a Spanish bond sale, suggesting yield-hungry investors are unconcerned that the financial turmoil in Cyprus might spread to other parts of the euro zone.
Still, analysts said the risk for the euro is to the downside.
"While we expect a constructive solution to emerge in the coming days, EUR/USD is likely to continue to face headline risk as capital controls will likely need to be imposed once banks re-open. There is also near-term risk for the euro from softer economic data," BNP's Serebriakov added.
Commodity currencies were among the best performers overnight with the Australia dollar hitting a six-week high near $1.0460. The New Zealand dollar climbed to a two-week high of $0.8345.
Investors warmed to the Antipodean currencies after strong Chinese manufacturing data on Thursday pointed to ongoing demand for commodity exports from the two countries. The kiwi was further supported by data showing surprisingly strong growth in the fourth quarter.
There is no major economic data due in Asia on Friday, leaving the focus squarely on developments in Cyprus. Lawmakers there will on Friday debate emergency legislation tabled by the government to confront the island's financial crisis.