The dollar shot to a near four-year high against the yen as the market digested last week's decision by the Bank of Japan to leave interest rates unchanged.

The US currency traded at 121.64 yen at 2200 GMT after 121.21 late Friday in New York. The dollar at one point surged to 121.80 yen, its highest level since March 21, 2003.

The euro meanwhile eased to 1.2948 dollars against 1.2965 on Friday.

The yen weakened as the Bank of Japan decision intensified speculation that the institution had bowed to political pressure.

"With talk in the Kyodo news (agency) today that the BoJ will struggle to raise rates in the first quarter, it seems likely that this speculation will continue to rise and, with it, fresh downward pressure on the yen," said Neil Mellor at the Bank of New York.

Patrick Fearon at AG Edwards said the dollar has been helped by lower energy prices and indications that the US economy may be growing faster than previously anticipated.

"The improvement has stemmed largely from lower global energy prices, but slower inflation (outside the US) also shows that continued interest-rate hikes by the foreign central banks have helped reduce economic growth," he said.

"In the United States and the United Kingdom, in contrast, evidence is accumulating that economic momentum may be building again. Because of that, we believe the dollar and the pound are likely to continue exhibiting strength."

Currency traders are keeping an eye on Wednesday's release of minutes from the last Bank of England (BoE) rate meeting, the key German Ifo business climate indicator on Thursday and US housing market data towards the end of the week.

The euro has stuck within its recent trading range against the dollar after failing to break back above the 1.30-dollar level last week, while the pound has remained strong but has yet to move back above the 1.98-dollar mark.

HBOS currency analyst Steve Pearson noted that although British fundamentals still appear strong after a surprise BoE rate hike earlier this month, the pound is looking overbought.

Wednesday's Monetary Policy Committee minutes from the BoE are expected to show that panel member David Blanchflower went against the majority and maintained his call to leave rates on hold.

In late New York trade, the pound bought 1.9762 dollars after 1.9741.

The dollar stood at 1.2490 Swiss francs, from 1.2477 Friday.