The dollar rose 0.37% on the yen to 127.44 yen in early trade, its highest level since May 2002.
It has risen 4.5% on the Japanese currency so far this month, which would be its second-biggest monthly percentage gain since 2016 behind March’s 5.8%.
The dollar was also firm against most other currencies and the dollar index was at 100.8, just off Monday’s two-year high of 100.86.
“I think the broad dollar trend reflects U.S. economic outperformance, while we’ve seen some initial impacts of higher energy prices from the Ukraine war elsewhere, especially in the euro zone,” said Carol Kong, FX strategist at Commonwealth Bank of Australia.
She added that she was watching purchasing manager index data due in several markets on Friday.
“If we get weak PMI numbers in the euro zone or elsewhere, then markets could potentially downgrade their economic expectations but I don’t think the US PMI will be particularly weak so we’ll see some contrast there, which would probably support the dollar,” she said.
“Of course, the big driver for dollar yen has been surging U.S. bond yields.”
The benchmark U.S. 10-year Treasury yield on Tuesday was hovering just off its three-year high of 2.884% hit Monday, while the Bank of Japan has been intervening to keep the yield on Japanese 10 year government bonds around 0% and no higher than 0.25%.
Japan was watching how the weakening yen may affect the economy, as stability in the currency market was important, Finance Minister Shunichi Suzuki said on Tuesday, reiterating earlier remarks by several politicians and officials.
The euro was at $1.0776, testing last week’s two-year low of $1.0756, and sterling was also soft at $1.3006, not helped by the latest fighting in Ukraine.
Ukraine said Russia had started an anticipated new offensive in the east of the country.
Elsewhere, the Australian dollar edged up from Monday’s one-month low and was at $0.7355.
Bitcoin also managed to find its feet, trading around $40,800 on Tuesday after hitting a one-month low of $38,547 on Monday.
(Reporting by Alun John; Editing by Stephen Coates)