The dollar slid nearly 1 percent on Monday and hit an eight-month low against the yen after a top US Treasury official suggested that Japanese policymakers should refrain from intervening verbally on currencies.
Timothy Adams, the US Treasury's under-secretary for international affairs, said at the Asia Development Bank's meeting last week that it was appropriate Japan had not intervened to stem yen strength since March 2004 but "we should all refrain" from commenting on exchange rates.
The remarks were seen as a signal Washington wants the dollar to weaken against the currencies of countries with hefty trade surpluses, especially in Asia, as a way to help fix global imbalances.
The dollar was also smarting from data on Friday showing that US businesses added 138,000 jobs in April, well below forecasts for a gain of 200,000.
The underwhelming figure further fuelled expectations the Federal Reserve is near the finale of its two-year credit tightening campaign. Since June 2004, the central bank has lifted rates 15 straight times, driving the dollar's rally last year.
"Last week's jobs data has helped to further deteriorate dollar sentiment," said Nobuaki Kubo, forex planning manager at Resona Bank.
He added that some market participants were closing short yen positions ahead of the Fed's policy meeting on Wednesday.
The Fed is expected to bump up rates to 5 percent, but a growing number of dealers expect the central bank to signal that the end to rising rates is likely around the corner.
The dollar was down about 0.85 percent at 111.60 yen, its weakest since mid-September last year.
The US currency has shed 6 percent against the yen in just three weeks and is down about 5 percent for the year.
The euro shed more than a yen from late New York levels on Friday to 142.15 yen.
But the single currency was steady around $1.2735, just below a one-year peak of $1.2765 struck on Friday. The pound changed hands at $1.8615 after striking a one-year high of $1.8654 in early action.
Japanese markets reopened on Monday after the country's Golden Week break that started last Wednesday.
The dollar has tumbled in the past two weeks since the Group of Seven economic powers called for countries with trade surpluses to allow more currency appreciation, singling out China and Asia.
As the yen has rallied, Japanese officials have repeated that excessive volatility in exchange rates is undesirable and that they are keeping a close eye on the market. The yen is often traded as a proxy for Asian currencies.
Finance Minister Sadakazu Tanigaki said on Monday that Japan's stance was unchanged.
Masafumi Yamamoto, currency strategist at Nikko Citigroup, said Japanese officials would keep up their warnings but were unlikely to intervene, given the yen's broad weakness and the Bank of Japan's move toward raising short-term interest rates.
The yen hit a 20-year low in April on a trade-weighted and inflation-adjusted basis, according to BOJ data.
"There's no reason to justify intervention," Yamamoto said.
Some analysts say the dollar is poised to deepen the slide against Asian currencies if the US Treasury names Beijing a currency manipulator in its report on the exchange rate practices of trade partners this week. The Treasury has not specified the day of release.
At the ADB meeting, China said it would push reform of the tightly managed yuan currency but would not take orders from other countries. Investors have interpreted last month's G7 statement on currencies as an implicit call for a dollar drop, even as officials have taken pains to correct such a reading.
Japan's vice finance minister for international affairs, Hiroshi Watanabe, told Reuters on the sidelines of the ADB meeting that the Fed, European Central Bank and Japan all agree the G7 statement did not point to a dollar fall.