* Financial stocks fall on lower U.S. yields
* Investors look to small caps when Nikkei volatility is low - analyst
By Ayai Tomisawa
TOKYO, July 13 (Reuters) - Japanese stocks edged up on Thursday morning, as tech shares were cheered by strength in their U.S. peers though a slightly higher yen kept overall market gains in check.
The Nikkei rose 0.2 percent to 20,132.56 in midmorning trade.
The benchmark index held to a tight range with limited upside as the dollar weakened against the yen after congressional testimony by Federal Reserve Chair Janet Yellen was seen as less hawkish than some traders had anticipated.
"When market's volatility is low, investors look to small-to-mid cap stocks after giving up chasing large cap stocks higher," said Yoshihiro Okumura, general manager at Chibagin Asset Management.
He said with global interest rates moving higher, foreign investors have remained cautious.
On Wednesday, the Bank Of Canada raised interest rates for the first time in nearly seven years, reinforcing signs of a move by major global central banks - including those in Europe - to a less stimulatory stance.
Some small cap shares outperformed, with Infoteria Corp surging 4.4 percent, Mixi Inc adding 0.5 percent while digital advertising firm SoldOut Inc, which debuted on Wednesday on the Tokyo Mother's market, jumped 17 percent.
The dollar was 0.1 percent lower at 113.07 yen after losing about 0.7 percent overnight, when it was pulled back from a four-month high near 114.495 scaled earlier in the week on expectations of U.S.-Japan monetary policy divergence.
Yellen said at her semiannual appearance before Congress that the U.S. economy is healthy enough for the Fed to raise rates and begin winding down its massive bond portfolio, though low inflation may leave the central bank with diminished leeway.
Banks lost ground after U.S. yields fell. Mitsubishi UFJ Financial Group shed 0.9 percent, Mizuho Financial Group declined 0.7 percent, insurer Dai-ichi Life Holdings dropped 2.0 percent.
Technology shares attracted buying, with Tokyo Electron Ltd rising 2.1 percent and Hitachi Ltd adding 0.9 percent.
The broader Topix dropped 0.2 percent to 1,621.93. (Editing by Shri Navaratnam)