The euro rose as high as $1.3864 dollars in Tokyo afternoon trade before dropping back to $1.3838, up from $1.3831 in New York late Tuesday. The European currency rose to 112.91 yen from 112.47 yen.
The stronger euro against the greenback was also encouraged by mounting expectations that the European Central Bank will adopt a hawkish stance against rising inflation pressures at Thursday's board meeting, analysts said.
In contrast, the Federal Reserve remains concerned about the slow pace of recovery in the United States, they said.
"Because recent data from Europe are strong, speculation is increasing that the ECB may exit earlier from easy monetary policies than the Fed is going to," Soichiro Mori, a senior analyst at FXOnline Japan, told Dow Jones Newswires.
The dollar stood at 81.49 yen from 81.33 yen, a one-month low against the Japanese currency struck overnight in New York.
"The dollar is being sold as investors are seeking risky assets," said Hideaki Inoue, chief manager at forex trading for Mitsubishi UFJ Trust and Banking Corp. "The share prices are going up."
The Nikkei index at the Tokyo Stock Exchange rose nearly two percent Wednesday on strong US manufacturing data and somewhat reduced geopolitical concern after Egyptian President Hosni Mubarak announced that he would not run in the next presidential election.
Mitsubishi's Inoue added: "Investors are selling the dollar as the Fed is saying it will keep the monetary easing policy and the markets are seeing the impact from the political unrest in Egypt will be limited."
He said a series of US economic reports, in particular data released by the Institute for Supply Management, were strong and indicated manufacturing in the United States was accelerating.
The Institute for Supply Management said Tuesday its purchasing managers index rose to its highest level since 2004. The jump was much stronger than anticipated and marked an 18th straight month of expansion.
The dollar was broadly lower against regional Asian currencies, falling to Sg$1.2724 from Sg$1.2769 on Tuesday, to 30.83 Thai baht from 30.87, and to 1,101.70 Korean won from 1,116.50.
It also dropped to 9,012.75 Indonesian rupiah from 9,039.00, to 43.99 Philippine pesos from 44.21, and to Tw$28.94 from Tw$29.03.