* Dollar/yen on defensive after hitting 17-mth low below 110
* Japan PM: countries should avoid "arbitrary intervention"-WSJ
* Euro steady, oil rebound supports Aussie, loonie (Updates prices, adds details and quotes)
By Shinichi Saoshiro
TOKYO, April 6 (Reuters) - The dollar hovered near a 17-month low against the yen on Wednesday after taking a fresh knock overnight on comments by Japan's prime minister which suggested that authorities were cautious towards arresting the yen's appreciation.
The U.S. currency inched up 0.1 percent to 110.51 yen JPY= but remained in striking distance of 109.92, its lowest level since Oct. 31, 2014 hit late on Tuesday.
Japanese Prime Minister Shinzo Abe told the Wall Street Journal that countries should avoid seeking to weaken their currencies with "arbitrary intervention." earlier turmoil in the global markets, the yen has advanced steadily this year due to its safe-haven status and more recently on expectations that the Federal Reserve would not hike interest rates as aggressively this year as initially anticipated.
But each significant advance had been accompanied by some wariness in the market that Japan could intervene to prevent a stronger yen, which is an unwelcome factor for a government trying to shore up a moribund economy.
"Japan will host the G7 summit in May. It cannot afford to invite almost guaranteed criticism by intervening through yen-selling after it adopted negative interest rates," said Junichi Ishikawa, FX analyst at IG Securities in Tokyo.
The Bank of Japan adopted negative interest rates late in January, but the shock move did little to weaken the yen.
"The authorities also have to keep U.S. political developments in mind, as presidential hopefuls Trump and Clinton have both been critical of Japan's stance on currencies," Ishikawa added.
Even without the Japanese prime minister's comments, the yen was on a strong footing thanks to wobbly global stock markets and lower U.S. Treasury yields, which lessens support for the dollar.
The dollar has lost more than one percent against the yen so far this week, and appears on track to post its third weekly loss in four.
"It's quite difficult for the Japanese government to resort to measures directly aiming at reversing yen strength, like FX interventions or BOJ's additional easing," wrote Osamu Takashima, head of FX strategy at Citigroup (NYSE:C) Securities in Tokyo.
"What the Japanese government can do at present is just to proceed with the organization of the fiscal stimulus package."
Japan's parliament last week approved a record state budget for fiscal 2016, paving the way for a debate on additional stimulus spending. dollar's sharp fall against the yen enabled the euro in turn to stay firm against the U.S. currency despite data showing a drop in German factory orders and a subdued start to the euro zone's business activity in the first quarter.
The common currency was nearly flat at $1.1375 EUR= after probing a low of $1.1335 overnight.
The euro managed to touch a 5-1/2-month high of $1.1438 last Friday after U.S. central bank chair Janet Yellen indicated she was in no hurry to tighten monetary policy last week.
The Australian dollar staged a modest bounce on the back of a rebound in commodity prices, rising 0.3 percent to $0.7565 AUD=D4 after losing 0.7 percent overnight. The Aussie was hurt earlier this week by a dent in global risk appetite and slide in commodities.
Other commodity-linked currencies like the Canadian dollar also benefited as crude oil rebounded from one-month lows. The loonie was steady at C$1.3129 per dollar CAD=D4 after pulling away from an eight-day low of C$1.3219 reached on Tuesday. (Editing by Kim Coghill)