The U.S. dollar slipped against the on Monday as traders took profits from the greenback's recent rally against the Japanese currency, while the dollar weakened against other major currencies on expectations for a dovish Federal Reserve meeting.
The dollar hit a session low of 110.85 yen after reaching a more than three-week high of 111.90 yen. Analysts said traders were taking profits and selling the dollar despite expectations that the Bank of Japan could increase its stimulus measures on Thursday after a policy meeting.
"It's profit-taking from the Friday move," said Jason Leinwand, managing director at derivatives advisory firm Riverside Risk Advisors in New York. "The market was definitely thinking the BoJ is going to increase stimulus."
While the dollar hit 111.90 yen early Monday, the majority of the dollar's recent climb against the yen came Friday, when the dollar rallied more than 2 percent against the yen. That rally was triggered by a Bloomberg report that the BOJ is considering applying negative rates to its lending program for financial institutions.
Despite the dollar's recent gains, it last remained down 8 percent against the yen for the year, putting it on track to post its worst yearly percentage decline against the yen since 2010.
While the BOJ could announce further stimulus measures to halt then yen's strength Thursday, skepticism about the central bank's power to weaken the yen contributed to the yen's gains against the dollar on Monday, said Alfonso Esparza, senior currency strategist at Oanda in Toronto.
"The BOJ really have a very limited runway," Esparza said.
The euro rebounded against the dollar, hitting a session high of $1.127 after hitting a nearly four-week low of $1.1213 earlier Monday. Esparza said expectations that the Fed would take a dovish stance in a policy statement Wednesday hurt the dollar.
"There will be little guidance, and it all points to the Fed taking a more patient stance until the U.S. economy forces a rate hike," Esparza said in reference to the central bank's path of raising interest rates further.
The euro was last up 0.37 percent against the dollar at $1.1264. The dollar index, which measures the greenback against a basket of six major currencies, was last down 0.34 percent at 94.88.
The dollar was last down 0.31 percent against the Swiss franc at 0.9756 franc.