A weaker yen helps Japanese exports and has already lifted Japanese stocks. Japan's benchmark Nikkei share average hit a 21-month high on Thursday and has climbed 22 percent this year, putting it on track for its best yearly gain since 2005.
(Read More: Why Falling Yen May Trigger Rise in Asian Stocks)
In the options market, risk reversals in dollar/yen showed a further bias toward yen weakness. Risk reversals from one-month up to four-years were skewed toward dollar calls or yen puts, reflecting increased confidence among investors to bet against the Japanese currency.
One-month implied dollar/yen volatility, a gauge of expected moves, rose to 8.5 vols from 7.3 last week, close to the Dec. 13 near-six-month high of around 8.65, highlighting growing demand to hedge against sharp price swings.
The yen touched its lowest level against the euro since early July. The euro hit 114.31 yen, a 17-month high.
Edge of the 'Cliff'
The euro traded at $1.3235, nearly flat for the day and below an eight-month high of $1.3308 hit last week. Europe's common currency had traded higher for most of the session. Reid's comments on the fiscal cliff pressured the euro, analysts said.
TD Securities' Osborne said a week ago that it looked like going over the cliff was a 50-50 proposition. "But now it seemed like a certainty, with everyone giving up on the negotiations," he said. "So now it looks like we slide off the cliff in the new year, and then we have to take it from there."
Should Congress fail to act by Dec. 31, tax rates for all Americans would jump back to pre-2001 levels. Two days later, $109 billion in automatic spending cuts would start to take effect.
Together, the higher taxes and lower spending would suck about $600 billion out of the U.S. economy, potentially causing a new recession in 2013. The dollar index stood at 79.68, up 0.1 percent for the day and above a two-month low of 79.008 hit last week.