The impact of stronger-than-expected US growth figures released on Friday spilled over into the new week, and saw the dollar retest peaks near 109.8 yen hit in the wake of the data. Concern about declines in Japanese stocks also weighed on the yen, with Nikkei share average down nearly 10 per cent this month and hitting its lowest since March 1999 at its nadir on Monday.

The dollar was also bolstered near Friday's one-week highs against the euro as revived talk of a US rate rise prevented the single currency from benefiting from stronger-than-expected Dutch and Italian producer price reports. "Friday's GDP data was very good for the outlook for the US economy and by association the dollar," a currency analyst at BNP Paribas in Paris Johnathan Bayley said. "An August rate hike is a closer call and you have to continue to favour the dollar going forward." The dollar has already risen about three per cent against the yen in July. It has made similar gains against the euro and was trading about a quarter cent away from Friday's one-week highs near $0.9220.

Market seen renewing attack on 110 yen
Sales of dollars aimed at protecting options positions were said by traders to have slowed the US currency's gains against the yen so far.

But analysts said it would soon renew its attack on 110, a breach of which was expected to give its rally new momentum. "The dollar should test 110 yen because there is no fundamental reason to buy the yen," said Jeremy Hawkins, Chief economic adviser at Bank of America in London.

"Certainly, all the numbers and the political developmentsout of Japan should be negative for the yen."