The dollar fell to one-week lows versus the yen on Monday, weighed down by fears of major losses at financial firms from credit market turmoil, while the Japanese currency benefited from hawkish policymaker comments.
Bank of Japan governor Toshihiko Fukui said that a timely interest rate hike was needed and that keeping rates too low could pose risks in the future.
Investors' risk appetite was hit after Citigroup Inc said on Sunday its Chairman and Chief Executive Charles Prince had stepped down and it may write off an extra $11 billion of subprime mortgage losses.
The Citi news, coupled with falls in equities, kept the dollar near record lows versus the euro and a basket of major currencies despite U.S. data on Friday showing a surge in October jobs growth well above expectations.
The dollar is still very weak, said Niels Christensen, FX strategist at Nordea in Copenhagen.
We had the negative news from Citigroup over the weekend and we had very negative equity markets in the Far East. So it is very difficult to see what would trigger some dollar buying when the payrolls report was not capable of doing so.
By 0807 GMT, the euro was down 0.25 percent at $1.4469, in sight of record highs at $1.4528 set on Friday.
The dollar index, which tracks the greenback's progress against a basket of six major currencies, was 0.15 percent higher at 76.407. The index fell to 76.220 on Friday, the lowest in its more than 30-year history.
The yen rallied to a one-week high of 114.27 per dollar and also gained versus the euro.
With Japanese rates at just 0.5 percent, the yen provides a source of cheap borrowing for investors wishing to purchase higher-return assets in so-called carry trades.
But any rallies in the yen, as well as any pick ups in market volatility, can easily wipe out profits from such trades, so investors tend to unwind them in periods of increased risk aversion, benefiting the yen.
The dollar's failure to sustain gains above 115.00 yen last week after the strong jobs data suggested the yen's potential to rise against the U.S. currency, traders said.
U.S. employers added 166,000 jobs in October, more than double analysts' median forecast, but the data was seen as just a fleeting sign of economic strength, and expectations grew that the Federal Reserve will keep cutting rates to support growth.
Monday features the U.S. Institute for Supply Management's non-manufacturing index for October, as well as speeches by New York Fed governor Frederic Mishkin and Atlanta Fed governor Randall Kroszner.