The dollar was adding to modest losses on Thursday made after a mixed bag of US economic data. It was kept on the back foot in Asia by last-minute dollar selling by US brokerages ahead of the New Year's holidays, Tokyo traders said.
The dollar has risen 12.4 percent this year against a basket of six major currencies, rebounding after a three-year, 30 percent decline driven by worries about the United States' ability to finance its growing trade deficits.
With the Fed expected to raise interest rates for a 14th straight meeting in January, taking its key rate to 4.5 percent, and more rises seen possible at further meetings, many market players expect the dollar's bull run to continue.
"We think the Fed will keep going to 5 percent by May," said Junya Tanase, a currency strategist at J.P. Morgan Chase in Tokyo.
"That's a bit higher than many market players are expecting so we think the dollar certainly has room to gain further as people start to factor in extra rate rises."
The dollar was trading around 117.30 yen down half a yen from its level in late US trade. It briefly rose to 118.17 in early trade, before dropping more than a yen to 117.01 yen. Traders said the move was exaggerated due to thin trade ahead of the New Year's holidays, and gained momentum after stop-loss orders lined up below 117.70 yen were triggered. Some US brokerages were selling dollars to unwind yen carry trades, they said. In so-called carry trades, speculators borrow the yen at near-zero interest rates to invest in the dollar and other higher-yielding currencies.
The dollar's fall against the yen helped push the euro to as low as around 139 yen The single currency firmed around 0.2 percent against the dollar to $1.1870
The dollar's dip on Thursday came after data showed a fall in existing home sales and despite a snapshot of business activity, the Chicago purchasing managers index (PMI), that was stronger than market expectations.