The US dollar was slightly higher against the euro and the yen in late Asian trading, although it was just off its high for the day against the yen, dealers said. At 0707 GMT here, the dollar was at 111.89 yen, up from 111.79 yen in Tokyo nearly four hours earlier. The euro was at 1.2675 usd, down from 1.2686 usd in Tokyo. The dollar had hit a low of 111.22 yen in the morning and then bounced back to 111.91 yen as short-covering emerged, dealers said. Japanese Finance Minister Sadakazu Tanigaki's warning that sharp movements in forex rates were undesirable and that the Bank of Japan "will monitor foreign exchange markets closely" contributed to the dollar's early gains, dealers said. But the yen continued to see strong interest as some players zoomed in on a report that the Bank of Japan is considering upgrading its assessment of the Japanese economy by using the word "expansion" for the first time in some 14-1/2 years, dealers said. The euro traded lower as it tracked the yen's dip, but it failed to fully recover the ground it lost after it encountered stiff selling from a US investment bank, keeping it pinned down near 1.2680 usd, dealers said. The dollar faces a critical day tomorrow, when the US Federal Open Market Committee (FOMC) meets and as the US Treasury is expected to publish a semi-annual foreign exchange report that could name China as a currency manipulator. The market is expecting the FOMC to raise the Federal funds rate by 25 basis points to 5.0 pct, but the wild card remains the accompanying statement and whether it will signal a pause in the Federal Reserve's series of increases in interest rates, dealers said. "Should the Fed affirm a pause at its FOMC meeting, it could increase the vulnerability of the dollar," DBS Bank said in a daily note. The US Treasury's foreign exchange report is even more uncertain, with the market divided over the outcome in light of good arguments in favor of and against naming China as an forex manipulator at this point, dealers said.