The dollar dropped from five-year highs against the yen Friday as investors reduced bets on the greenback amid caution ahead of a U.S. Federal Reserve policy meeting next week that may herald a wind-down of its massive stimulus measures.
While market participants in general expect the Fed to pare back its stimulus no later than March, a growing number expect a small reduction in the Fed's asset purchases from next week. The central bank holds a two-day policy meeting Dec. 17-18.
In early New York trading, the dollar fell 0.2 percent to 103.17 yen, after hitting 103.92 in Asian trading, its highest level since October 2008. Traders said there are bids in the 103-yen area and if that goes, there could be more selling of some short-term longs ahead of the weekend.
Other than against the yen, the dollar was generally steady versus other currencies. It was slightly higher against the euro at $1.3732 and was up 0.5 percent versus sterling, which last traded at $1.6274.
The euro also hit a five-year peak against the yen at 142.81, but was last down 0.4 percent at 141.64 yen.
So far this year the dollar has gained 19 percent against the yen while the euro has risen 24 percent, on expectations the Bank of Japan will provide even more stimulus next year.
The euro in general has been resilient despite recent poor economic data, as two-year swap rates rose to their highest levels in a month. The European Central Bank said on Friday that banks will return 22.65 billion euros of crisis loans to it next week, above analysts' forecasts, tightening liquidity in the bloc.
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