The dollar rose 0.2 percent against the yen to 84.40 yen. The greenback had hit a 20-month high of 84.62 yen last Wednesday as the yen retreated in the wake of a landslide election victory by Abe's Liberal Democratic Party (LDP). The dollar was steady to firmer against major currencies, having gained a boost after negotiations to prevent a US fiscal crunch hit an impasse last week and dented investors' appetite for risky assets.
"It looks like all momentum for the fiscal cliff negotiations is gone," Rob Ryan, strategist for RBS in Singapore, said on Monday. The dollar had surged on Friday after a budget plan proposed by the Republican speaker of the US House of Representatives, John Boehner, failed to win support from his own party. That deepened worries US lawmakers might not reach a deal to avoid the fiscal cliff by year-end.
The greenback will probably hold firm in the near term, although it could get pushed around by year-end flows over the next several days, said Ryan at RBS. There has been some market chatter that Asian central banks, which are thought to have conducted dollar-buying intervention over the last few weeks, may be looking to sell the dollar to buy currencies such as the euro and the Australian dollar, in order to diversify their portfolios, Ryan said.
On the other hand, US companies might buy the dollar for year-end fund repatriation, he added. "So we have two conflicting flows. I would prefer to favour the second," he said, referring to the possibility of the dollar getting support from fund repatriation. The euro fell 0.1 percent versus the dollar to $1.3182. The single currency has retreated since hitting an eight-month high of $1.33085 last Wednesday, as the lack of progress in the US budget talks gave a boost to the dollar, a safe haven currency that tends to rise in times of market stress. The dollar index, which measures the greenback's value against a basket of major currencies, stood at 79.598, staying above a two-month low of 79.008 set last Wednesday.