The dollar hit a seven-month low against the yen on Monday, extending a slide as the Federal Reserve appears set to soon end a two-year run of credit tightening that had widened the US currency's yield advantage.
A renewed focus on US deficits after last month's meeting of Group of Seven industrialised powers, worries about Iran's nuclear ambitions and deteriorating technical signals have also helped drive the dollar to one-year lows against the euro.
The yen gained across the board on solid buying by hedge funds and investment banks, while some Japanese players squared positions heading into the country's Golden Week holidays on Wednesday through Friday.
"Most Japanese are going into the Golden Week holidays, so they probably want to lighten up their positions a bit," said a senior trader at a US investment bank.
The move was exacerbated by thin trading conditions with many major financial centres, including Singapore and Hong Kong, closed for holidays. Dealing desks in Tokyo were lightly staffed. Analysts said the dollar's drop may deepen in the days ahead even as market players have built up huge short positions, typically a sign that a reversal of a trend could be in store.
"It will take time until all market participants have the impression they have done enough on the dollar's downside," said Kikuko Takeda, currency strategist at Bank of Tokyo-Mitsubishi UFJ.
Analysts and traders said the dollar also faced short-term risks, including geopolitical uncertainty. United Nations ambassadors from the United States, Britain and France are expected to introduce a resolution this week to legally oblige Iran to comply with Security Council demands, so far rebuffed by Tehran.
After Fed Chairman Ben Bernanke suggested last week that the central bank is almost done raising rates, the dollar may benefit less from any surprisingly strong economic data, analysts said.
Two key pieces of US data are due out later in the day.
The Fed's favoured inflation gauge, the core personal consumption expenditures (PCE) index, is due on Monday along with the personal income and consumption report. Core PCE is forecast to show a rise of 0.2 percent in March versus a 0.1 percent month-on-month gain in February.
The Institute for Supply Management's monthly manufacturing PMI, closely watched for trends in the industrial sector, is expected to show a slip to 55.0 in April from 55.2 the previous month, though that would still indicate solid growth.
Markets in many European countries will also be shuttered on Monday, while US markets will be open as usual.
The dollar fell as low as 113.05 yen on electronic trading platform EBS. It was changing hands around 113.10 yen, holding above technical support at 113.
The single European currency slid 0.5 percent to 142.85 yen from 143.75.
With the yen taking centre stage, the euro was little changed near $1.2630 just off a peak at $1.2640, the highest since May last year. Sterling edged up to an eight-month high of $1.8281
Last week's sharp slide capped a rough April for the dollar.
The dollar's trade-weighted index fell 4 percent in April, the worst drop since September 2003, with the US currency chalking up its biggest losses against the Swiss franc and pound.
Reflecting the big bets against the dollar, speculators on the International Monetary Market racked up a record net long position in the euro of 65,525 contracts through last Tuesday. Yen short positions were slashed to a one-year low of 6,490.
The Fed is widely expected to raise rates for a 16th straight time to 5 percent at its meeting on May 10 but then to take a break to assess the impact of the repeated credit tightening.
By contrast, the European Central Bank is expected to press ahead with its own campaign of raising rates all year while the Bank of Japan is expected to bump up overnight rates as soon as July, in what would be the first hike in six years.
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