The yen rose against the dollar for the first time in four sessions on Monday after Japanese Prime Minister Shinzo Abe won a widely expected victory in elections for parliament's upper house.
Investors had already priced in Abe's victory and had sold the yen against the dollar ahead of the outcome, and market participants locked in profits as a result. The victory represents a rare bout of political stability in Japan and strengthens the mandate for Abe's reflationary policies.
The euro, meanwhile, rose to a one-month high versus the dollar after Portuguese President Anibal Cavaco Silva said the current government will stay in office to keep an international bailout on track.
But it was the yen that grabbed the headlines in the currency market. Although Abe's victory affirmed Japan's aggressive monetary easing, some analysts said that at this point, there is not much the government can do to stimulate the economy.
"Primarily, the yen's rise against the dollar was a buy-the-rumor, sell-the-fact kind of thing," said Vassili Serebriakov, currency strategist at BNP Paribas in New York. "But at the end of the day, Japan can only do so much to lift its economy, and the dollar's upside could be limited."
The dollar was down 1.1 percent at 99.53 yen, closer to the session low of 99.28 than the session peak of 100.71 yen. Volume on the pair totaled around $1.7 billion on the Reuters trading platform.
(Read more: Will it be third time's a charm for dollar-yen?)