The yen fell to a two-week low on Thursday as investors sold the currency on speculation that the Bank of Japan could decide to expand its monetary stimulus as soon as next month.
Talk of more action gathered pace after prominent Japanese academic Takatoshi Ito said the BOJ is likely to expand monetary stimulus either in June or July. Ito is said to have close ties to Governor Haruhiko Kuroda.
For his part, Kuroda said the BOJ won't hesitate to take further easing steps if necessary, adding that there were still large downside risks to Japan's economy. The BOJ introduced negative rates earlier this year, but that has so far had little impact on the yen or economic data, analysts say.
The dollar rose 0.9 percent to 109.40 yen, its highest since April 28, and recovering from a 18-month low of 105.55 yen on May 3. That low was struck after the BOJ held off from expanding its monetary stimulus at its policy meeting in late April.
Traders have been cutting favorable bets on the yen following a series of warnings from Japanese Finance Minister Taro Aso that Tokyo would intervene to curb any excessive one-sided gains.
"With policy easing speculation gaining ground and the Finance Minister talking down the yen, it is clear they do not want a stronger currency," said Niels Christensen, FX strategist at Nordea.
Many analysts believe Japan will be wary of intervening before it hosts a Group of Seven meeting this month, even though Tokyo is unhappy with the yen's rise of more than 10 percent so far this year.
"For dollar/yen, it would appear that it is now caught in nervous range trade around 105 to 110," said Heng Koon How, senior currency strategist for Credit Suisse Private Banking Asia Pacific. "It is likely that Tokyo is still trying to build consensus and agreement on intervention."
Sterling rose to a six-day high against the dollar after Bank of England policymakers voted unanimously to keep interest rates on hold, pouring cold water on talk that one or two committee members might vote in favor of a cut.
In a quarterly inflation report published at the same time, the BoE stepped up its warnings about the economic risks if Britain votes to leave the European Union, saying sterling could fall sharply and unemployment would probably rise.
The pound rose to $1.4498, above its two-week low of $1.4375 touched on Monday.
The Norwegian crown surged 1 percent against the euro to hit its highest since early May after better-than-expected first-quarter growth data was read as dimming the chances of further interest rate cuts that some in the markets were pricing in for later in the year.
Earlier, Norway's central bank kept rates steady, as expected, and sounded slightly bullish on economic growth prospects.