TOKYO: The dollar took a breather Friday, after a sharp run-up fuelled by expectations for a US interest rate hike this year pushed it to a 12-year high against the yen.
In Tokyo late morning trade, the greenback bought 123.72 yen, from 123.96 yen in New York where it briefly touched a 124.46 yen, its highest level since December 2002.
The surge against the yen underscores growing expectations for the Federal Reserve to raise rates this year, while Japan's central bank considers further easing monetary policy to prop up a faltering economy.
"The fact that the Fed has shown an intention to raise rates within the year has been behind the weakening of the yen," Juichi Wako, a senior strategist at Nomura, said.
The chances of a rate hike -- which tends to boost demand for dollar-denominated assets -- have increased following positive US economic data and comments from Fed chief Janet Yellen last week that rates would go up "at some point this year".
In Japan, data Friday showed household spending unexpectedly fell in April while inflation and factory output were also lacklustre -- disappointing figures likely to fuel talk that the Bank of Japan (BoJ) will announce more stimulus this year.
"The BoJ will be forced to take additional easing at some point this year," Enrique Diaz-Alvarez, chief risk officer financial services firm Ebury, said.
"We see the selloff (in the yen) picking up steam in the fourth quarter because markets don't really react to Federal Reserve hikes until they actually happen," he added.
The euro bought $1.0958 and 135.57 yen, against $1.0947 and 135.70 yen in New York.
Investors are tracking talks between heavily indebted Greece and its creditors, which hung over a meeting of finance ministers from the Group of Seven leading industrialised nations in Germany.
International Monetary Fund chief Christine Lagarde, who was attending the G7 meeting, reportedly warned of the potential for a Greek exit from the 19-nation eurozone and said such a scenario would not be "a walk in the park" for the bloc.
Investors are growing nervous as Greece approaches a deadline next week to repay some of its debts but with no cash in the bank and a bailout reform deal no closer there are fears it will default, which in turn could see it leave the eurozone.
"Greece news and chatter continues to permeate markets as Greece gets closer to the first payment to the IMF due June 5," National Australia Bank said in a commentary.
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