The dollar rose against the yen in Asia Monday on receding speculation of an imminent rate cut by the U.S. Federal Reserve.
The euro retreated, but traders speculated the currency could gain amid expectations for rate hikes by the European Central Bank.
The U.S. dollar was trading at 123.94 yen midafternoon in Tokyo Monday, up from 123.87 yen late Friday in New York. On Friday, the dollar rose to a 4 1/2-year high of 124.12 yen
The euro fell to US$1.3458 from US$1.3466 and to 166.58 yen from 166.73 late Friday.
Traders expect the euro to reach 167 yen soon, which would be a new all-time high, and it may hit 168.50 yen this week, lifted by continued investment in euro assets by Japanese financial institutions.
European Central Bank President Jean Claude Trichet said Friday that strong money growth points to inflationary risks in the euro zone, indicating a further rate hike is likely.
Looking ahead, market participants are turning their focus to Japan's core consumer price index figures, due out Friday, for clues on the direction of the country's monetary policy.
But even if the reading turns out to be stronger than market expectations, "the yen's fall (versus the euro) probably won't stop given the still relatively low Japanese interest rates," said Osao Izuka, head of foreign-exchange trading at Sumitomo Trust & Banking.
Against other Asian currencies, the dollar was mixed. It rose 0.59 percent against Indian rupee to 40.835, while dropping 0.06 percent to 927.3 Korean won.
US President Joe Biden and Iraqi Prime Minister Mustafa Al Qadimi signed an agreement on July 26 to formally end the USA's military presence in the country by the end of the year