The dollar stayed near a two-month high against the euro on Wednesday as a swelling chorus of comments from Federal Reserve officials suggested the currency's interest rate advantage would keep strengthening.
But the dollar edged down against the yen as Japanese stock prices surged and on comments from another top Bank of Japan official suggesting Japan was closer to ending seven years of deflation and boosting its own key interest rate.
Kansas City Fed President Thomas Hoenig said late on Tuesday that the US central bank must ensure price stability after the damage wrought by hurricanes Katrina and Rita.
That echoed comments he made earlier in the week and San Francisco Fed President Janet Yellen's remarks on Tuesday that an unacceptable rise in inflation was not an option, signalling the Fed's 15-month streak of rate rises would not end soon.
"The market is saying what we're not going to get is a surprise in terms of rates - we're not going to get some cuts because of storm-damage problems," said Luke Waddington, head of forex trading at Royal Bank of Scotland in Tokyo.
BoJ board member Miyako Suda said on Wednesday that the days of the central bank's "quantitative easing" policy of flooding banks with cash were numbered, similar to recent comments from other top BoJ officials.
Her comments helped to lift yields in Japanese government bonds, propping up the yen.
Also supporting the yen was a jump in Tokyo share prices to four-year highs. The Nikkei share average ended trade up about 1 percent.
"There's a growing view that the Japanese economy is in better shape than previously thought and that the BoJ will end its zero interest rate policy," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp "So the yen is likely to rebound."
The dollar sagged to 113.05 yen from around 113.30 yen in late US trade. It had struck a two-month high of 113.52 yen in the previous session.
Traders said the yen could rise further next week, once Japanese buying of the dollar ahead of the September 30 book-closing ends.
The euro was a tad higher at $1.2025 after hitting a two-month low around $1.1980 a day earlier. Sterling and the Swiss franc were also mired in sight of two-month lows against the dollar.
The dollar's rise was tempered by data showing a steep fall in US consumer confidence in September - one of the first monthly reflections of how the economy was faring after Katrina.
It was also capped by disappointment that Fed chief Alan Greenspan's speech on Tuesday had little bearing on the interest rate outlook.
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