The dollar declined from a four-year peak against the yen Friday after an unexpected fall in U.S. retail sales last month reinforced expectations the Federal Reserve will keep its monetary policy loose to support the U.S. economy.
But any rebound in the yen should be short-lived after the Bank of Japan unveiled aggressive monetary easing last week to fight decades-long deflation. Traders said it's only a matter of time before the dollar rises above the 100 yen mark.
U.S. retail sales fell 0.4 percent in March, the Commerce Department said, contracting for the second time in three months in a sign the American economy may have stumbled at the end of the first quarter.
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"It is the latest in a growing list of economic numbers that will likely keep the dollar pressured and the Fed in no hurry to normalize policy," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The Fed's bond-buying program, which equates to printing money, has been a major headwind for the dollar in recent years. But minutes from recent Fed meetings suggested some Fed policymakers expected to taper the pace of asset purchases sometime this year.
The dollar fell 1.1 percent to 98.47 yen. It had earlier risen to a session peak of 99.80 yen, near a high of 99.94 set on Thursday, the strongest since April 2009.
On the week, the dollar rose about 0.9 percent against the yen, its second straight week of gains. It was on track for its largest two-week gain versus the yen since early 2009.
The dollar had gained 7 percent against the yen since the BOJ pledged Thursday to inject about $1.4 trillion into the Japanese economy in less than two years. But its rally has slowed near the psychologically important 100 level, with traders citing hefty option barriers and dollar-selling pressure from Japanese exporters.
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"There is a correction taking place in the wider yen selloff that we have seen," said Chris Walker, currency strategist at Barclays. "But drops in the dollar/yen have been shallow and are good levels to short the yen. We forecast dollar/yen to rise to 103 yen in a month's time."
The BOJ's steps have prompted many analysts to revise up their forecasts for the dollar's strength against the yen. Societe Generale analysts now target an eventual rise to 110, up from 103 previously, while Bank of Tokyo Mitsubishi UFJ forecasts dollar/yen at 109 yen in the next 12 months.
The euro slipped 1.1 percent to 129.06 yen, retreating from 131.11 yen set on Thursday, its highest in more than three years.
On Friday BOJ Gov. Haruhiko Kuroda said he had taken all necessary steps to meet its 2 percent inflation target in two years and will try to minimize volatility in the Japanese government bond (JGB) market caused by its massive bond buying.
Fund managers and analysts say once the volatility in the bond market settles, Japanese investors are likely to reallocate money overseas in search of higher yields.
"With the BOJ now a major buyer of JGBs, expectations are that Japanese investors in JGB's—mainly banks, insurance companies and pension funds—will start to allocate part of their money to foreign assets," said Jaco Rouw, fund manager at ING Investment Management. "This might partly be on an unhedged basis if the BOJ successfully creates expectations of a weaker yen. As almost all yen weakness so far has been driven by the international financial community, this Japanese flow should be the next leg of further yen depreciation."
The data shows no such flow yet, but analysts expect that may change quickly.
Against the dollar, the euro was last flat at $1.3102. Reported option expiries around $1.3000 could likely keep the currency pinned around that level.
Strategists said markets will focus on a meeting of European Union finance ministers starting later on Friday, expected to approve a 10 billion euro bailout package for Cyprus. Ministers will also likely discuss revisions to the terms and conditions of bailouts for Portugal and Ireland.