The dollar fell against the yen on Monday as selling from Japanese exporters dominated thin trade ahead of market holidays in both the United States and the United Kingdom.
The US currency ended higher last week as speculators unwound dollar-selling positions they had taken after the Group of Seven economic powers called last month for greater currency strength in Asia to help fix global imbalances.
"I think buy-backs in the dollar will continue for a while but today we are likely to see some selling from Japanese exporters, which will cap the dollar," said a trader at a Japanese bank.
The US currency had failed to break above 113 yen last week but kept some distance from an eight-month low just under 109 yen hit earlier in May.
The dollar was at 112.30 yen, down from around 112.70 yen in late US trade on Friday.
The euro was little changed around $1.2745, more than two cents below its one-year high around $1.2970 hit in mid-May.
The single European currency eased to 143.15 yen from around 143.55 yen.
Financial markets in London and the United States are closed on Monday for public holidays.
Traders kept an eye out for updates on the possibility that US Treasury Secretary John Snow will soon step down.
US media reported on the weekend that President George W. Bush was leaning towards having former Commerce Department Secretary Don Evans take over Treasury.
Republican sources said last week that Snow will likely step down in June.
"Evans is likely to put pressure on Asian currencies to rise against the dollar," said analysts at J.P. Morgan Chase Bank in a report to clients.
The yen showed little response to Japanese retail sales data that landed on Monday. Sales fell 0.6 percent in April from a year earlier, compared with economists' forecast for sales to drop 0.5 percent.
A Reuters/Jiji Press survey published on Monday showed that a big majority of market players expect the Bank of Japan to end its zero-interest-rate policy in the third quarter, with July 14 cited as the most likely date.
The survey of 96 Japan-based economists, strategists and traders showed that no one expects the BoJ's first rate increase in six years to take place in June.
This week is heavy with high-profile US data, including the Institute for Supply Management's manufacturing index on Thursday and the monthly employment report on Friday.
Signs of solid economic activity and inflationary pressures could cement market expectations for another interest rate hike by the Federal Reserve in June, boosting the dollar, analysts said.
The dollar's growing yield advantage was the main driving force behind the currency's rally in 2005.
"The recent short-covering in the dollar indicates that the dollar's downtrend has finished. The market's focus is back on interest rate gaps," said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp.
On Friday, government data showed the Fed's favourite measure of inflation rose in line with market expectations. The core personal consumption expenditure index rose 0.2 percent in April from March. Compared with a year earlier, it rose 2.1 percent - just above the Fed's perceived comfort zone of 1 to 2 percent.
For more clues about the outlook for Fed policy, the minutes of the central bank's May 10 meeting, due on Wednesday will also be keenly digested.