The yen hit a two-week high against the dollar and a one-week peak versus the euro on Monday as investors expected economic reforms to survive a poor election showing by Japan's ruling Liberal Democratic Party (LDP).
Prime Minister Junichiro Koizumi gave weight to those expectations, vowing to press on with reforms after the LDP won 49 of 121 seats at stake in Sunday's upper house poll - below the party's modest target of 51 but above its worst-case scenario of less than 44.
The result means Japan's ruling coalition has kept its majority in the upper house. It also holds a majority in the more powerful lower chamber, which chooses the prime minister.
"There was an element of uncertainty in the market throughout last week and that was undermining the yen and the equity markets. But come Friday some forex players were starting to anticipate they would not do a badly as predicted," said Derek Halpenny, currency economist at Bank of Tokyo Mitsubishi.
"That has limited the fallout in terms of dollar/yen declines this morning but once we digest the results further, and current account data which came out, it does suggest some potential upward scope for the yen going forward."
The dollar fell below 107.60 yen, its lowest level since June 28, before inching back to 107.70 by 0730 GMT, down 0.4 percent from late Friday's levels.
The yen was also up against the euro, gaining to around 133.45 yen per euro at one point before trimming gains to stand 0.4 percent up on the day at 133.70 yen.
The euro set a four-month high of $1.2426, compared with Friday's peak of $1.2423.
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