The yen dipped to a six-week low against the dollar Monday and fell against the euro as a pre-Christmas equities rally boosted investors' risk appetite.
Sterling also fell to a record low against the euro for the second straight session after weak UK housing data confirmed expectations for more Bank of England interest rate cuts in 2008, possibly as soon January.
Trading activity was light as Tokyo and some European centers were closed for holidays, while U.S. activity was likely to wind down by midday.
For those still active ahead of Christmas, guarded optimism seemed to be the prevailing mood, with global stock market gains prompting a move back into carry trades that use cheaply borrowed yen to buy higher-yield assets.
Investors also welcomed brokerage Merrill Lynch's announcement that it plans to sell most of its capital lending business to General Electric's finance arm and get a capital infusion of up to $6.2 billion in a private placement with Singapore state investor Temasek Holdings and Davis Selected Advisors, a U.S.-based asset manager.
"In holiday-thinned trade, investors are trying to lock in high-yielders, so you see the yen and Swiss franc doing badly and the higher yielding currencies, including many emerging market currencies, doing well," said Marc Chandler, senior currency strategist at Brown Brothers Harriman in New York.
The dollar was up 0.2 percent at 114.38 yen , its highest level since Nov. 7. The euro was up 0.5 percent at 164.72 yen and also gained 0.3 percent to $1.4405.
"The improvement in risk gauges -- such as firmer equities and softer bonds and drops in volatilities -- have helped propel market risk sentiment which is helping the euro. The key thing to watch here is euro/yen," said Lena Komileva, G7 market economist at Tullett Prebon.
The euro also rose to a record high of 72.88 pence, up 0.6 percent on the day, after British data showed annual house price inflation in England and Wales at its lowest level in 1-1/2 years in December. That added to concern about a slowing UK economy and expected Bank of England rate cuts.
"There are increasing signs that the British economy has hit a brick wall triggered by the decline in the housing market," BNP Paribas said in a research note, forecasting that the euro would rise to 76 pence by the third quarter of 2008.
Markets expect both the BoE and the Federal Reserve to cut rates next year, but the European Central Bank is seen keeping rates on hold to fend off inflation pressures. That's helped keep the euro bid against the U.S. and UK currencies.
Sterling also fell 0.3 percent to $1.9766, and Chandler said the combination of more BoE cuts and recent strong U.S. consumption data suggest the dollar has bottomed against the British currency.
The high-yield Australian dollar rose 0.3 percent to US$0.8703. The New Zealand dollar climbed 0.4 percent to US$0.7662.