The dollar struck a two-week high against the yen in thinning trade on Thursday, bolstered by an above-consensus gauge of US consumer sentiment and on track for its best annual gain against major currencies in eight years.
Adding to the dollar's buoyancy were some expectations in the market for a resumption of yen carry-trades, in which speculators borrow the yen at near-zero interest rates to invest in the dollar and other higher-yielding currencies.
The Bank of Japan is expected to keep Japanese overnight rates at zero until at least late 2006, while the Federal Reserve is seen likely to raise its funds rate to 4.5 percent in January, its 14th straight rate hike.
The dollar ticked up to 117.99 yen - its highest level since a sharp fall two weeks ago - from around 117.95 yen in late US trade. Option-related selling at 118 yen was blocking the dollar's advance for now, traders said. It was at 117.85 yen.
The dollar had declined sharply against the yen earlier this month as speculators, such as hedge funds, rushed to unwind carry-trades to lock in gains ahead of the year-end.
The euro was up slightly at 139.70 yen and firmed a tad to $1.1850.
The euro was helped by a surprise improvement in a reading for German consumer sentiment during European trade on Wednesday.
Dollar buying since the Christmas holidays has been led by US banks but overall trade flows have been thin ahead of the year-end holidays, exaggerating price moves, traders said.
The dollar had risen 0.4 percent versus the yen on Wednesday after the US Conference Board said its index of consumer sentiment rose to 103.6 in December from the previous month's reading of 98.3, underscoring the strength of the US economy.
The British pound rose 0.3 percent to $1.7220. It had hit a one-month low of $1.7130 on Wednesday, falling for an eighth straight session, despite upbeat news on the UK property market and retail sales.
The allure of sterling as a high-yielding currency has eroded as the Fed has aggressively raised rates since June 2004.