"There are few reasons to sell the dollar," said Satoshi Soda, assistant manager in the foreign exchange and international treasury division at Sakura Bank Ltd. "It is naturally expected" that Japanese will keep investing in the U.S. for higher returns, he added.

In Tokyo, the dollar traded as high as 125.00 yen, its highest since Feb. 2, 1993, when it bought 125.27 yen. The dollar continued to strengthen today in New York. By late today, it was at 125.8 yen.

The U.S. currency has been rising since Friday, when Treasury Secretary Robert Rubin said the United States won't call for a weaker dollar to help reduce its trade deficit with Japan.

"There is no reason for people not to buy dollars," said Masahiro Yamaguchi, manager for foreign exchange at Tokai Bank Ltd.

Rubin said Friday that he opposed adjusting currency values to keep Japanese exports from rising. A stronger dollar could expand the bilateral trade gap by making Japanese exports less expensive in the American market.

Traders said they expect Japanese to keep selling yen for dollars to reap better returns offered by higher-yielding U.S. assets.

Sputtering domestic stocks and record-low government bond yields are forcing Japanese investors to channel funds overseas.

"Basically, Japanese institutional investors still have an appetite to invest overseas, looking at the 4.8 percentage point interest rate differential between the U.S. and Japan," said Naohiko Nakajima, manager in the financial markets advisory group at Bank of America.