The dollar hovered near a two-year high against the yen on Wednesday after another top Federal Reserve official signalled interest rates would rise further to stem the threat of inflation accelerating.
Fed Vice Chairman Roger Ferguson said late on Tuesday the energy price surge following hurricanes Katrina and Rita had worsened the inflation outlook but the economic outlook remained solid.
His comments came on the heels of a report showing spiking energy costs after the hurricanes drove up US producer prices in September by the biggest amount in 15 years. Data last week showed consumer prices jumped by the most in 25 years the same month.
Another policy maker, San Francisco Fed President Janet Yellen, said the central bank would not repeat the policy mistakes of the 1970s that led to a bout of hyper-inflation.
The Fed's repeated vows to keep raising rates and limit the inflation fallout from soaring energy prices has helped revive the dollar's rally this year.
Markets widely see the Fed pushing rates higher at its final two meetings this year, taking the fed funds rate to 4.25 percent from the current 3.75 percent. More economists see the Fed lifting rates as high as 5 percent next year.
At least three more Fed officials are slated to speak on the US economy later in the day, including New York Fed President Timothy Geithner.
Also helping to put investors at ease about the massive US deficits, US Treasury figures showed foreigners bought a net $91.3 billion of US securities in August, showing the country is having little trouble for now funding its current account gap.
"All the data and news is dollar positive," said Rick Lloyd, head of G11 currency trading at ABN Amro in Sydney. "The dollar's looking pretty well bid."
The dollar changed hands around 115.80 yen, near a 25-month peak of 115.94 yen hit a day earlier. The euro fetched 138.20 yen, in sight of a two-month peak around 138.70 yen struck on Tuesday.
Voracious Japanese demand for higher-yielding foreign bonds has swamped the yen, overshadowing widespread confidence Japan's economy is set for sustained growth that has sparked big overseas buying of Tokyo shares.
Analysts say greater hedging of yen currency risk by foreigners holding Tokyo stocks, combined with greater unhedged purchases of foreign bonds by big Japanese institutional investors, may be the main factor behind the yen's abrupt slide.