The dollar was also helped by pledges from President Bush supporting the dollar and saying fiscal deficits need to be cut. But traders are skeptical given the Bush administration's goal to make tax cuts permanent.
Bush also cited the Federal Reserve's interest rate rises as part of U.S. action on the dollar, though so far the rise in U.S. rates over European and Japanese counterparts has offered little solace to the U.S. currency.
Earlier this week the Fed raised the federal funds rate by 0.25 percentage point to 2.25 percent, taking it above the euro zone's rates for the first time in three years.
After a two-day meeting, the Bank of Japan kept unchanged its ultra-easy monetary policy but downgraded its view of production, citing inventory adjustments in the information technology sector. But the central bank said it expected Japan's recovery to continue.
Japanese officials have stuck to a more optimistic line on the economy than analysts despite mounting doubts on the growth outlook after a string of weak data.
The Japanese government forecast real growth of 1.6 percent in the fiscal year beginning in April, a slowdown from its forecast for 2.1 percent growth in the current year, according to a draft obtained by . A recent poll found a median forecast for 1.2 percent growth in the next fiscal year.
Traders will focus next on the German business sentiment survey by the Ifo Research Institute.
The Ifo index is expected to fall to 93.8 from 94.1 in November. That would be the fourth fall in five months and its lowest level since September 2003.