The dollar broke the ¥110 barrier for the first time in more than six years on Oct 1st, following a string of generally upbeat US data and expectations of more Bank of Japan monetary easing.
The greenback soared to ¥110.09 in late morning Tokyo trade, its highest level since August 2008 and up from ¥109.64 in New York, as investors turn their attention to a key US jobs report later this week.
The dollar has been rising against the yen and euro as the US Federal Reserve's stimulus tapering policy increasingly diverges with expectations for fresh easing moves by Japanese policymakers and the European Central Bank.
In other trading, the euro weakened to US$1.2614 against US$1.2631 in the US, while the single currency strengthened to ¥138.67 against ¥138.50. "Even after crossing the 110-line, the dollar-yen may gain a bit more," said Yuzo Sakai, manager of FX business promotion at Tokyo Forex & Ueda Harlow.
Hopes for an earlier-than-expected US interest rate hike have been drawing investors back to the dollar amid signs that a recovery in the world's number one economy was taking hold. But the employment figures on Friday will be crucial to cementing that optimism after US consumer confidence fell for the first time in four months and weakness in Chinese manufacturing stoke renewed fears about the global economy.
The surprisingly weak US data came after the economy grew at the fastest pace since 2011 in the second quarter, expanding at an annualised rate of 4.6 per cent, and reversing a contraction in the first three months of the year.
On Wednesday morning, the Bank of Japan released its Tankan quarterly business confidence survey which pointed to a sluggish improvement following a sharp drop in the prior quarter as a sales tax hike slammed the brakes on the world's number three economy.
The closely watched report came after separate figures this week pointed to poor industrial production and household spending in Japan following the Apr 1 levy hike to 8.0 per cent from 5.0 per cent - the country's first in 17 years. Weakness in Japan's economy has stoked expectations that the BoJ would be forced to launch more easing measures to counter the downturn.
Last year, the bank unleashed an unprecedented stimulus campaign last year as part of Tokyo's broader bid to resuscitate the long-laggard economy, following the sweeping election victory of Shinzo Abe.
Japan's new prime minister pledged to conquer the deflation that has plagued Japan's economy for years. But the recent batch of sluggish data will likely "increase investor expectations that the BoJ will announce further monetary easing", said Toshihiko Matsuno, research head at SMBC Friend Securities. Japan's central bank holds a monetary policy meeting next week.