Prime Minister Shinzo Abe and his advisers have cut the field of final candidates to two or three. Muto is seen as likely to pursue slightly less radical stimulus measures than some of the other contenders. A decision could come in the next few days, the sources said.
Stephen Jen, managing partner at hedge fund SLJ Macro Partners in London, believes that the next step for dollar/yen is to go even higher, possibly in the 100-110 yen area. "Japanese policymakers will most likely continue to pursue Abenomics with aggression, but will try to pacify Japan's G-7 partners by toning down their verbal interventions," said Jen.
The euro last traded up 0.6 percent against the yen at 124.84 yen after falling to 122.87, its lowest since Jan. 30. It hit a 34-month high of around 127.71 last week. On the week, the euro posted gains of 0.9 percent.
(Read More: ECB's Weidmann Dismisses Talk of Euro Intervention)
Yen shorts declined further as of Tuesday, data from the Commodity Futures Trading Commission on Friday showed, given the uncertainty about the G-20 meeting at that time. But betting against the yen should pick up again as the G-20 decided not to make a big deal about the currency's weakness.
Federal Reserve Chairman Ben Bernanke on Friday said the United States is acting in line with the position of the G-7 by using domestic policy tools to boost growth and reduce unemployment.
ECB chief Mario Draghi criticized on Friday recent "chatter" on currencies and said the euro's exchange rate was in line with long-term averages. Like ECB policymaker Jens Weidmann, who spoke earlier, Draghi resisted pressure from some euro zone politicians to target the euro's exchange rate on the ground that it is overvalued.
Euro Under Slight Pressure Vs. Dollar
The euro remained slightly under pressure against the dollar a day after the release of data showing the euro zone sinking more deeply into recession than forecast. The grim picture is likely to keep alive expectations of an ECB interest rate cut.
Euro zone money market rates are also likely to ease in coming weeks, which should keep the euro well away from its recent high of $1.3711 struck on Feb. 1.
The euro last traded flat at $1.3363.
The Italian election on Feb. 24 and news on the repayments by euro zone banks of loans to the ECB would be the key drivers for the euro in the upcoming week. The expectation is that the bank repayments would be lower than last month and should slow the pace of the decline in the ECB's balance sheet. That should be viewed as euro negative.
U.S. data released on Friday, meanwhile, also helped drive gains in the dollar versus the yen. Manufacturing got off to a weak start this year as motor vehicle production tumbled, but a manufacturing in New York state expanded this month suggesting the decline would be temporary.
Consumers were a bit more upbeat early this month even as they paid more for gasoline and their paychecks were reduced by higher taxes, other data on Friday showed.