The dollar fell against the yen in Asia Wednesday prompted by selling by Japanese exporters, but many traders said that they expect the dollar to start rising from the beginning of next year.
The dollar bought 118.78 yen in mid-afternoon in Tokyo, down from 119.18 yen from late Tuesday in New York. The euro rose to US$1.3120 from US$1.3096.
Traders said the dollar will likely rise to as high as 122 yen in January given growing speculation that the interest rate differentials between the U.S. and Japan will hardly shrink anytime soon.
Early in the Asian session, Japanese media reported that the Bank of Japan may discuss whether it could raise rates in its policy board meeting next month, but the impact of the news will likely be short-lived, traders said.
"Given recent Japanese data showing weak consumer spending and prices, the speculation of an imminent rate hike won't likely grow anymore," said Tsutomu Soma, currency and derivatives trader at Okasan Securities.
"Unless the BOJ raises policy rates continuously, the dollar will keep climbing further versus the yen, with yen-carry trades increasing," he added.
In addition, Tokyo traders said the view that the U.S. economy may be recovering slowly could also prompt players to prefer the dollar over the yen.
Since last week, the dollar has had a bullish trend against the yen, following the results of U.S. economic indicators such as a University of Michigan sentiment survey, suggesting steady growth in domestic consumer spending.
The dollar was mostly higher against other Asian currencies. The dollar rose 0.55 percent against Thai baht to 36.36, and rose 0.14 percent to 32.680 Taiwanese dollar following a powerful quake there.