The rose to a five-month high on Tuesday on the back of broad-based selling of the dollar and speculation the Bank of Japan could be close to dialing back record levels of monetary stimulus.
The yen has gained 1.5 percent against the dollar this month, benefiting last week from a rush by investors into currencies deemed safer amid the rout in equity markets. But while risk appetite has recovered this week, investors have continued to sell dollars and buy yen.
The dollar was down 0.57 percent against a basket of six currencies, reversing some of its gains last week, when it enjoyed its best performance since 2016.
"A lot of people in the market are expecting the yen to rise, because a turnaround in BOJ monetary policy has not been priced in," Ulrich Leuchtmann, a Frankfurt-based analyst at Commerzbank said.
This helps explain the move, even though there is not consensus that the BOJ will follow other central banks in gradually ending the era of easy money soon.
"I dont buy it," said John Doyle, vice president of dealing and trading at Tempus in Washington.
"Last Friday we saw that Governor Kuroda will be reappointed for five more years, and that's a signal to us that business will continue on as usual," Doyle continued.
The yen rose 0.79 percent to 107.78 per dollar, close to the high it hit in September at 107.32 yen. If the yen breaks through that, it will hit its best level since late 2016.
Prospects of higher inflation globally have rattled investors this month and have helped drive equity market falls. Investors will be closely watching the release of U.S. consumer price index data on Wednesday for signs of inflation.
"Even if you have a reason to push the dollar one way or the other today, (the moves) will be minimal because were waiting to see if the wage growth we saw in the January employment data is making its way into the economy," said Doyle.
Elsewhere, the euro rose to $1.2356, up 0.53 percent, as gains in global equity markets encouraged traders to sell the dollar and tiptoe back into riskier assets.
Though risk appetite appears to be recovering, emerging market currencies that sold off last week failed to make much headway, with the Turkish lira, Mexican Peso and Russia's rouble all treading water.