The dollar dropped to a one-month low against the yen on Monday as market players mulled the significance of last Friday's weaker-than-expected U.S. employment data.

The dollar was weighed by a sharp slowdown in jobs growth which bolstered views the Federal Reserve could yet ease monetary policy further to boost the economy.

The jobs report also raised doubts over the ability of the United States to help boost the global economy as the euro zone debt crisis continues and as fears persist about China's ability to avoid a hard economic landing.

The dollar debate is where the center of FOMC (Federal Open Market Committee) gravity now is with respect to further stimulus and what degree of economic weakness it would take to get stimulus back on the agenda, said Steven Englander, head of G10 strategy at CitiFX, a division of Citigroup in New York.

If the Fed opts to embark on a third asset purchase program, called quantitative easing, that would be negative for the dollar as it is tantamount to printing money.

The dollar fell as low as 81.18 yen, according to Reuters data, its lowest level since March 8, before changing hands at 81.32 yen, down 0.4 percent. Trade, however, was light, with many European markets closed for public holidays.

One possible support for the dollar lies at 81.07 yen, a trader said, which is the 38.2 percent retracement of its rally in February-March.

The greenback could drop to around 80.00 yen in the next week or two, especially when taking into account current market positioning, said Daisuke Karakama, a market economist for Mizuho Corporate Bank in Tokyo.

When you look at short positions in the yen, they haven't really decreased, and their size is still comparable to levels seen back in the summer of 2007, Karakama said.

You have to think about whether that is sustainable or not, he added.

The latest data from the U.S. Commodity Futures Trading Commission shows currency speculators slightly trimmed their net short positions in the yen in the week ended April 3 to 65,108 contracts.

That was still close to the previous week's 67,622 contracts, which was the biggest net short position in the yen since July 2007.

One risk for the yen this week is the Bank of Japan's two-day policy meeting that ends on Tuesday. The central bank's policy has been under the spotlight since its surprise monetary easing in February triggered a broad fall in the yen.

The BOJ is seen refraining from easing monetary policy and holding fire, however, until it unveils its long-term economic and price forecasts on April 27.

EURO DROPS BROADLY

The euro has come under renewed pressure after weak demand at a Spanish bond auction last week rekindled worries about the euro zone's sovereign debt crisis.

Against the dollar, the euro touched a fresh three-week low of $1.3031 and last traded at $1.3052, down 0.3 percent on the day. The euro also slid against the yen, hitting a fresh one-month low near 106.08 yen.

Unease about the prospects for the euro, however, has abated somewhat as reflected in the options market, with three-month risk reversals in the euro/dollar still biased for euro puts, trading at -2.0 vols on Monday, but improving from -3.5 vols in mid-February.