TOKYO (AFP) - The U.S. dollar hit a more than 12-year high against the yen on Tuesday as upbeat US data reignited talk of an interest rate hike this year.
In Tokyo, the dollar briefly hit 125.05 yen - its strongest level since December 2002 - before settling back to 124.73 yen, compared with 124.81 yen in New York.
"The current dollar-buying sentiment is likely to remain strong for now as the market tends to react to US economic figures positively," said Yosuke Hosokawa, head of the forex sales team at Sumitomo Mitsui Trust Bank.
"But the planned US rate hike is not a fresh story - we see the dollar's rise stopping at some point," he added.
The chances of a US rate hike - which tends to boost demand for dollar-denominated assets - have increased following positive economic data and comments from Federal Reserve chief Janet Yellen that rates would go up "at some point this year".
As the Fed tightens policy, speculation is building that the Bank of Japan will announce further stimulus to prop up the weak economy, which would tend to soften the yen.
On Monday, data showing US construction spending picked up strongly in April increased belief the economy is rebounding after the winter stall, which saw it contract in the first three months of the year.
Also, the Institute for Supply Management said its measure of US manufacturing activity climbed last month from a near two-year low in April, while the Commerce Department said personal incomes rose 0.4 per cent in April, and disposable income the same, after both were flat in March.
The euro was at US$1.0928 and 136.33 yen, compared with US$1.0924 and 136.35 yen in New York, as investors look for progress in Greece's attempts to strike a bailout deal in order to unlock billions of euros in aid that will allow it to service its debts.
There are fears that failure to do so will see Athens default, which could see it leave the eurozone.
The heads of the International Monetary Fund and European Central Bank met German Chancellor Angela Merkel, French President Francois Hollande and European Commission head Jean-Claude Juncker to discuss Greece's crisis as a Friday debt repayment deadline approaches.