Japanese domestic politics may also be turning more in the dollar's favor, market participants said. Koichi Kato, a senior lawmaker with the ruling Liberal Democratic Party, said Monday he had submitted a letter to resign from the LDP, the political party of Prime Minister Junichiro Koizumi, to take responsibility for an aide's arrest on suspicion of tax evasion. That followed LDP politician Muneo Suzuki's announcement Friday that he intends to leave the LDP, after being tainted by a series of scandals since January. Neither resignation had much effect on currency markets. But taken together they might further erode Koizumi's already-crumbling popularity and make it more difficult for him to push his reform efforts past conservative elements within his party. "The market's not immediately worried about politics, but it may have reason to worry in the future, if the sustainability of Koizumi's Cabinet becomes an issue" in the weeks ahead, said Morgan Stanley's Umemoto. The dollar's firmer footing also gave a lift to the euro against the yen. The European currency rose above Y114 and appeared poised to test resistance at Y114.50 later in the session. "We're bullish on the euro-yen in the medium view, given the prospects for eventual Fed tightening and overvalued U.S. stocks," says J.P. Morgan's Malcolm.