The dollar fell against the yen on Monday on profit-taking after its swift rise to a 2-1/2 year high last week -- a rally driven by expectations of aggressive monetary easing by the Bank of Japan.
The dollar was down 0.4 percent at 87.72 yen, off Friday's peak of 88.48 yen on trading platform EBS, which was its strongest since July 2010.
Traders said the dollar could extend falls if it broke below reported stop loss sell orders at 87.50 yen.
Strategists said the dollar was likely to give up some of its recent gains against the yen as investors, who return after the holidays with fresh allocations this year, take profit on its rapid ascent.
"From mid-October (last year) until last week's high dollar/yen has a nearly 13.5 percent appreciation in a very short period of time so it is obvious we will see some pullback," said Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets.
She said the dollar's steep rise against the yen was purely based on expectations of aggressive policy easing by the BOJ and there was a risk their actions might fall short of market forecasts, leading the dollar to weaken against the Japanese currency.
"There is a risk that markets got a little bit carried away and that we don't see as much as we were hoping for (from the BOJ) and we see a pullback in dollar/yen."
The BOJ meets on Jan. 21-22.
But some analysts and traders said the dollar's uptrend would remain intact.
"I think 90 yen might be reached pretty soon," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, adding that the dollar could head toward 95 yen over the next six months and possibly as early as March.
The dollar's gains accelerated last week after minutes from the Fed's December meeting showed some policymakers had considered ending their bond-buying programme as early as this year.
By contrast, many investors are betting Japan's new government, led by Prime Minister Shinzo Abe, will seek to weaken the yen and push through aggressive fiscal stimulus, and pressure the BOJ to do the same on the monetary side.
The euro, which fell after last week's Federal Reserve minutes, eased 0.3 percent to $1.3034, after falling to a three-week low of $1.2998 on trading platform EBS on Friday. Analysts said it could stay aroud these levels until a European Central Bank meeting on Thursday.
"Euro/dollar will likely consolidate around $1.30 until the ECB meeting. People back from their holidays would wait and watch (for news out of the euro zone) before adding any fresh positions," BMO's Childe-Freeman said.
Analysts said the ECB meeting could refocus the market's attention on the fragility of the euro zone economy and the possibility of an interest rate cut in the coming months, weighing on the euro.
Strategists cited chart support at around $1.2987, its 55-day moving average, while traders said a reportedly large options expiry at $1.30 could keep the euro close to that level.
The euro dropped 0.8 percent to 114.28 yen, moving away from an 18-month high of 115.995 yen set on EBS last Wednesday.