The yen languished near a three-week low on expectations the Bank of Japan could start lending to banks at negative rates, while sterling hit a five-week high on hopes for rise in support for Britain staying in Europe.
The yen fell to as low as 111.90 in early trade, its lowest level in more than three weeks, before paring losses to trade at 111.47, up 0.3 percent from late U.S. levels on Friday.
Price moves are likely to have been exaggerated as a holiday in Australia compounded a lack of liquidity in early Monday before Asian trade.
On Friday, the yen fell 2.1 percent -- its biggest fall since the day BOJ Gov. Haruhiko Kuroda unleashed his second easing in October 2014 -- after Bloomberg reported that the Bank of Japan is considering applying negative rates to its lending program for financial institutions.
The big fall was likely to have been driven by selling by speculators who held a huge amount of yen long positions. Data on Friday showed that currency speculators held a record yen long position in the Chicago futures exchange.
But with much of any further easing already priced in, the yen may have limited room to fall further after the BOJ's policy meeting on April 27-28, some analysts said.
"The hurdle for the dollar/yen to rise further has been heightened after the report. If the BOJ comes up with what's already reported and a bit of stock purchases, that would lead to buy-on-rumor-sell-on-fact type of dollar/yen selling," said Minori Uchida, chief FX analyst at the Bank of Tokyo-Mitsubishi UFJ.
The British pound scaled a five-week high of $1.4475 in early trade and last stood at $1.4442, up 0.3 from late last week.
The firmness stemmed from hopes that public opinion may tilt in favor of staying in the European Union after U.S. President Barack Obama threw his weight behind the "in" camp.
The pound hit a six-week high against the euro of 77.52 pence per euro.
The common currency was weaker against the dollar, touching a four-week low of $1.1216.