The dollar rose broadly ahead of an eagerly-awaited US employment report on Friday, recovering almost a yen from four-year lows against the Japanese currency set earlier this week.
Monthly US jobs figures have disappointed recently, sending the dollar reeling, but a strong employment component in Thursday's ISM manufacturing report has raised expectations that March payrolls data at 1330 GMT could be better.
Economists polled by Reuters last week expected 103,000 new jobs to have been created last month compared with 21,000 in February. However, dealers said the consensus was now closer to 120,000.
"Expectations for the payrolls are flying quite high at the moment," said Carsten Fritsch, currency strategist at Commerzbank in Frankfurt.
By the European mid-session, the dollar was up more than half a percent at 104.22 yen. The euro also succumbed to the dollar's firmer tone, shedding almost half a percent on the day to $1.2302.
Job creation has been the weak spot in the US economic recovery and investors believe the Fed is unlikely to raise interest rates until the employment market has perked up.
Low rates of return on dollar deposits have played a key role in the dollar's recent downtrend as investors have sought higher-yielding assets elsewhere.
The yen paused on Friday after sharp gains earlier in the week, prompting speculation Japanese investors were buying foreign assets at the start of the fiscal year which began on Thursday.
Nevertheless, against a backdrop of an improving economy, large foreign buying of Japanese stocks, and an apparent scaling back of intervention by the Bank of Japan, analysts said it was only a matter of time before the Japanese currency resumed its climb.
"The yen is just pausing for breath," said David Mann, currency strategist at Standard Chartered. "We still see it going higher in the coming months."
Japanese officials were upbeat about the country's economic recovery on Friday but denied speculation that the improvement had led to a change in their policy of resisting a rise in the yen.
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