The yen hit a 10-day low against the dollar on Monday after Japan's finance minister said Tokyo was ready to intervene in the currency market if needed, and as stronger risk appetite sapped demand for traditional safe havens.
The yen had reached an 18-month high against the dollar last week, having gained around 15% in the past six months in part because of waning investor expectations for a steady increase in U.S. interest rates.
That has prompted a ramping-up of intervention talk from Japan, with Finance Minister Taro Aso's comments on Monday following remarks last week from Prime Minister Shinzo Abe, who said it was watching the yen's movements and would act if necessary.
Many investors believe the bar for intervention is still high and that the comments amount to no more than verbal intervention.
"It's like the ECB (European Central Bank). They say they're ready to take action if needed but we've come from 123, 124 (yen per dollar) and we went to 105, and they haven't done anything," said UBS's head of currency strategy, Constantin Bolz, referring to the last six months.
"If I read those headlines, it wouldn't make me buy dollar/yen."
A recent U.S. Treasury report said "persistent one-sided" intervention by countries to weaken their currencies could see those with big trade surpluses, such as Japan, classified as manipulators - the latest sign that U.S. officials are not comfortable with more dollar gains.
Nonetheless, the greenback gained almost 1% versus the Japanese currency on Monday, hitting 108.14, its strongest in 10 days and well clear of last week's low of 105.55 yen. Bolz said that could be mainly explained by a risk-on mood across markets.
The dollar index hit an 11-day high of 94.056, having shown a fairly muted reaction to Friday's U.S. jobs report. That left it well clear of a 16-month trough of 91.919 hit last week.
"There is little to suggest that we will see further dollar strength from this point on. We’ve had a little recovery... but I think this is as far as we can go for the time being," said Commerzbank currency strategist Thulan Nguyen.
Also helping the dollar's slight rebound was New York Fed President William Dudley, who said on Friday two U.S. rate hikes this year remained a "reasonable expectation."
Speculators increased bets against the dollar in the week up to last Tuesday, taking the most net dollar short bets since Feb. 5, 2013.
Disappointing trade figures from China on Sunday led the Australian dollar, often used as a liquid proxy for China plays, down half a% to a 10-week low of $0.7335.