The dollar climbed almost 2 percent against the yen on Monday following a surge in Japan's stock market, after the country's ruling coalition won a clear victory in upper house elections, fuelling expectations of more monetary stimulus.
The dollar hit a four-month high against a basket of major currencies, having already been given a lift by a bumper US jobs report on Friday which saw investors price back in the chance of an increase in interest rates by the Federal Reserve before the end of the year.
Japan's Nikkei stock average closed up 4 percent after Prime Minister Shinzo Abe's victory. He is expected to tighten his grip on the conservative party, which he led back to power in 2012 promising to revive the economy with hyper-easy monetary policy, fiscal spending and reforms - a programme known as "Abenonics".
The dollar rose as much as 1.9 percent on the day to 102.48 yen, its biggest one-day rise in almost three months. It fell as low as 99 yen on June 24 in the aftermath of Britain's shock vote to leave the European Union, which drove investors to the Japanese currency and other safe havens.
"The election result has taken away some of the appetite for selling at the levels we'd got down to - 100 was a big level and I think for the markets to push through that there would have to be some escalation of developments that would really push risk aversion higher," said Bank of Tokyo-Mitsubishi UFJ currency strategist Derek Halpenny, in London.
In Frankfurt, Commerzbank currency strategist Thulan Nguyen said Abe's promise of further fiscal stimulus, which would necessitate an expansion of monetary stimulus in order to keep bond yields down and shore up inflation, was driving down the yen.
US job creation in June was much stronger than expected at 287,000, easing fears that the labour market may be faltering. Though the core view is still that interest rates will stay where they are, a 24 percent chance of a Fed hike by December is now being priced in, according to CME FedWatch.
"The data was likely strong enough to reduce concerns that weak job creation in April and May was signalling the beginning of a much more severe contraction or even recession in the United States," wrote BNP Paribas strategists in a note to clients.
Sterling reversed earlier losses to turn positive on the day after Theresa May emerged as the only remaining candidate to lead Britain's ruling Conservative Party and become prime minister, after rival Andrea Leadsom pulled out of the race.
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