TOKYO: The dollar was supported on Wednesday by expectations of a US tax overhaul while a sharp rise in German bond yields helped to underpin the euro.
The House of Representatives approved the biggest US tax overhaul in 30 years on Tuesday, though Congressional Republicans will likely need to hold another vote later on Wednesday because of to procedural issues.
The dollar fetched 112.87 yen, extending its rebound from Friday's low of 112.035, with last week's high of 113.75 seen as its next target.
But gains in the dollar were limited as many market players looked to the Bank of Japan's two-day policy meeting ending on Thursday for clues on whether the BOJ will join the US Federal Reserve and European central banks in winding back stimulus.
A speech by BOJ Governor Haruhiko Kuroda in November sparked such speculation when he mentioned the concept of a 'reversal rate' - a level at which low interest rates start to have more harmful side-effects than benefits.
"There is very strong interest in the 'reversal rate'. Kuroda's news conference (when the BOJ meeting ends) will be pretty much all about just that," said Yukio Ishizuki, senior strategist at Daiwa Securities.
Uncertainty over the BOJ's intentions is a major reason the yen did not slip much despite the sharp rise in US bond yields the previous day, Ishizuki also said.
The yield 10-year US Treasuries rose to a seven-week high of 2.472 percent, near its seven-month peak of 2.477 percent hit in late October, from below 2.40 percent.
The surge was driven in part by expectations of tax reforms raising US bond issuance, but many analysts said the immediate trigger was a jump in European bond yields on Tuesday after Germany unveiled a plan to issue more 30-year debt next year.
Higher euro zone yields underpinned the euro, which traded at $1.1840, having risen 0.5 percent on Tuesday.
Against the yen, the euro stood at 133.76 yen, not far from strong resistance levels around 134.50.
Elsewhere, the Canadian dollar stood at C$1.2877 to the US dollar after having hit a five-month low of C$1.2920 on Tuesday.
In addition to the US dollar's general firmness, the Canadian dollar has been undermined by worries over renegotiation of the North American Free Trade Agreement (NAFTA).
Investors worry that terminating NAFTA could hurt Canada's economy and pressure its currency.
Canada sends 75 percent of all its goods exports to the United States and could be badly hit if Washington walks away from NAFTA, which US President Donald Trump has blamed for American job losses and his country's big trade deficits.
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