The dollar rallied to trade at a fresh 4 1/2-year high against the yen on Wednesday after Federal Reserve Chairman Ben Bernanke warned that holding interest rates too low for too long has its risks and raised the possibility the Fed could at least slow its bond purchases.
Initially the dollar sold off as investors focused on the first headlines citing Bernanke saying monetary stimulus is helping the U.S. economy recover but it was too soon to remove existing measures.
(Read More: Bernanke: Too Soon to Consider Tapering Bond Buying)
Those remarks were in line with sentiment of recent days which had seen dollar weakness and were widely anticipated, including in the trading moments leading up to Bernanke's testimony. But investor focus shifted rapidly as Bernanke raised the possibility of reducing the Fed's bond purchases this year if economic growth improves further.
"If we see continued improvement and we have confidence that that's going to be sustained, then we could, in the next few meetings, we could take a step down in our pace of purchases," said Bernanke during the question-and-answer portion of his testimony before the U.S. Joint Economic Committee.