The dollar slid about 1 percent to three month lows against the yen in early trade on Monday after Group of Seven countries singled out China in their call for more flexibility in exchange rates.
The G7 finance ministers and central bank governors, in a communique issued after a meeting in Washington, called for a further rise in China's yuan to help cut its growing trade surpluses with the rest of the world.
In morning trade, one dollar bought 115.68/71 yen, having been quoted as low as 115.35 yen. It fetched around 116.50 yen in late U.S. trade on Friday.
Analysts said the renewed pressure on China's currency regime hurt the dollar most of all given the United States ran a far larger trade deficit with China than any other country.
The meeting highlighted a weakening path for the dollar given some pretty explicit statements from the G7, said Cameron Bagrie, head of market research at ANZ Bank.
He noted that, not only was China singled out, but the G7 seemed ready to transfer its power to a wider surveillance group in recognition that exchange rate policies are no longer a matter of concern for advanced industrial countries alone.
The implicit message is that the U.S. dollar needs to go down, but the group of G7 does not want their currencies to endure the brunt of the appreciation. Hence, the dollar must go down against non-G7 nations, concluded Bagrie.
The euro firmed to $1.2370/73, compared with around $1.2345 on Friday. It had gained late last week after Sweden's central bank said it had increased the share of euros in its foreign exchange reserves to 50 percent and cut the dollar's share to 20 percent from 37 percent.
Dollar sentiment was further dented after Russian Finance Minister Alexei Kudrin questioned the dollar's status as the wold's main reserve currency. The comment fed worries that other central banks might diversify their holdings away from dollars.