The dollar peaked at 118.39 yen, the highest level since mid-April, before easing back to 118.30 in Tokyo afternoon trade, up from 118.03 in New York late Friday.

The euro was at 1.2674 dollars after 1.2668 and at 149.92 yen from 149.57.

Dealers said that while the Bank of Japan's Tankan report showed that the Japanese economy was healthy, the outlook remains more cautious, leaving uncertainty about when the central bank will raise interest rates again.

Sentiment among large manufacturers increased to 24 in September from 21 in June, the report showed, well above the 21 level expected by the market.

"Although the Tankan survey is positive and shows no major weakness in Japanese growth, it's not impacting the yen much as traders wait for news on the US economy," said Bank of Tokyo-Mitsubishi UFJ chief analyst Osamu Takashima.

With a US economic slowdown expected to put the brakes on Japan's recovery, the major manufacturers remained somewhat cautious about the outlook, forecasting a drop in the index back down to 21 by December.

"The market is focused on whether the BoJ will raise interest rates again this year but that will depend also on the outlook for US economic growth," Takashima said.

Another clutch of US economic indicators is due this week including Institute for Supply Management surveys on US manufacturing Monday and services Wednesday, as well as a key monthly labour market report on Friday.

US Federal Reserve chairman Ben Bernanke is scheduled to give a speech on savings to the Economics Club of Washington on Wednesday amid growing expectations that the next move in US interest rates may be down.