The yen rebounded against major currencies on Monday as some investors bet that its recent decline was too far, too fast.
The Japanese currency got a boost from Sunday's annual report from the Bank for International Settlements, which said that there was clearly something anomalous in the low-yielding yen's recent slide to multiyear lows against a range of currencies, including a record low against the euro.
The dollar is expected to remain within tight ranges against its major counterparts as traders await U.S. housing market data, inflation figures and the Federal Reserve's interest rate decision and statement later in the week.
It's more of a yen story than anything else, said Stephen Malyon, senior currency strategist at Scotia Capital in Toronto. With the Fed Thursday and durable good orders on Wednesday, the dollar will be rangebound until then.
In early morning New York trade, the dollar was down 0.2 percent on the day at 123.64 yen, down from Friday's peak of 124.16 yen, the highest since December 2002.
The euro fell 0.2 percent to 166.52 yen, having reached an all-time high of 166.94 yen in the previous session, according to electronic trading platform EBS.
The yen was also up around 0.1 percent on the day against the Swiss franc.
Investors were cautioned however that the yen's rebound on Monday may be temporary.
Unless there is a radical change in expectations for interest rates, people will look for levels to sell the yen, said John McCarthy, head of foreign exchange trading at ING Capital Markets in New York. I find it unfathomable at times, but so much (trading) is model-driven interest rate plays.
The euro was flat against the dollar at $1.3467, while sterling was also little changed at $1.9998, having popped above the psychological $2 barrier for the first time in almost two months.
The high-yielding New Zealand dollar recovered losses it incurred on suspected central bank intervention late on Friday, striking its highest level against the dollar since it was allowed to float in March 1985.
The kiwi's strength against the dollar, as well as sterling's buoyancy, are signs there's still some appetite for carry trades, in which low-yielding currencies are used to buy high-yielding ones, said Phylis Papadavid, currency strategist at Lehman Brothers in London.
However, with authorities from Switzerland seeming to take action to tighten credit and limit the use of their currencies to fund carry trades, funding currencies are recovering some ground.
Attention now turns to the United States, and existing home sales for May at 10 a.m. (1400 GMT). Economists expect a slight fall in sales, the third consecutive month of decline.
The Fed on Thursday is expected to keep rates on hold at 5.25 percent, and core personal consumption expenditures inflation will be released on Friday. U.S. durable good orders for May are set for release on Wednesday.