* Aussie remains out of favour
* Some BOJ members uneasy about feasibility of inflation target
* US and UK markets closed for holidays
By Sophie Knight
TOKYO, May 27 (Reuters) - The dollar dipped against the yen in early Asian trade on Monday after marking its worst week in a year on Friday, as volatility in Japanese stocks and bonds pulled it well away from its highest level in 4-1/2 years.
The greenback last bought 101.13 yen, dropping 0.1 percent from Friday, when it scraped a trough of 100.68 on Friday and closed 1.9 percent down on the week.
On Thursday, the Nikkei was jolted off 5-1/2 year highs as investors scrambled for safety in Japanese bonds after poor Chinese trade data, and after the 10-year Japanese government bond yield rose to 1 percent, its highest in over a year.
Bank of Japan Governor Haruhiko Kuroda said over the weekend that the country’s financial institutions have sufficient buffers against losses they may incur from rises in bond yields, as long as market moves are driven by prospects of an economic recovery.
On Monday, BOJ minutes showed that some members said the central bank should continue to seek ways to prevent falling liquidity in the Japanese government bond market, while others said its 2 percent inflation target may be hard to reach in two years.
Yen buying pressure at the end of last week helped to pause the dollar’s broad gains over the last three weeks that were driven by expectations that the U.S. Federal Reserve may wind down its bond-buying programme earlier than scheduled.
“Expectations that the Fed will reduce QE3 should be positive for the dollar, but if stocks continue to fall it will likely be a negative for the dollar-yen,” said Yoshio Takahashi, currency strategist at Barclays in Tokyo.
On Monday, the dollar index dipped 0.1 percent after dropping 0.7 percent last week, as Fed Chairman Ben Bernanke told Congress that the central bank will not exit its easing programme unless the economy showed further signs of improvement.
A quiet day of trading is expected as U.S. markets are closed for Memorial Day, while the U.K. is closed for a bank holiday.
The euro was steady at $1.2926 after rising 0.7 percent last week, its first weekly gain in three weeks, supported by signs of improvement in German business morale on Friday.
The next area of resistance for the common currency gains lies around its 20-day moving average at $1.2992.
The Australian dollar, meanwhile, continued its forlorn trundle downwards, losing 0.1 percent to $0.9637 on Monday morning. It has already skidded 7 percent this month, weighed on by concerns about lower commodity prices as Chinese growth slows, as well as a surprise rate cut by the central bank.
If the Aussie remains more than 6.6 percent down by Friday, this would mark its worth month since September 2011, when it fell 9.7 percent.