The dollar matched the previous session's three-month high against the yen on Friday after data showed a strong rise in regional US business activity, backing a view that US interest rates will stay on hold for some time.
The low-yielding yen was seen as likely to remain on the back foot and languished near a record low against the euro just ahead of a two-day meeting of Group of Eight finance ministers in Potsdam, Germany that starts on Friday.
The dollar was boosted on Thursday by data showing that manufacturing activity in the US Mid-Atlantic region accelerated in May, and could eventually approach four-year highs against the yen, market players said.
"The mood in the market seems to be to try for new highs in the dollar," said a trader for a major Japanese bank. By the end of the month, the dollar could rise above a four-year high of 122.20 yen hit in January to levels around 122.50 yen, the trader said.
The dollar was little changed from late US trading on Thursday at 121.29 yen. It rose as high as 121.37 yen on electronic trading platform EBS earlier in the session, matching a level hit on Thursday that was the highest since late February.
Selling by Japanese exporters helped temper the dollar's advance, traders said, adding that profit-taking could also hold back the dollar in the near term. The euro slipped slightly to $1.3484 edging towards a one-month low of $1.3462 hit late last week. Against the yen, the euro was a bit lower at 163.53 yen holding near a record high of 163.90 yen hit earlier this week.
While there was some caution ahead of the G8 gathering this weekend, traders said the meeting seemed unlikely to produce much news that could rattle currency markets, especially since US Treasury Secretary Henry Paulson will be skipping the event. A senior US Treasury official said on Wednesday that no discussion of exchange rates was expected at the G8 meeting.