The single currency was changing hands at $1.2812 and 99.83 yen in Tokyo morning trade, down from $1.2856 and 100.12 yen in New York late Friday.

The dollar was at 77.91 yen against 77.88 yen as investors shrugged off a Bank of Japan survey that showed confidence among large Japanese manufacturers worsened in the quarter ended September, in line with market expectations.

The euro is weaker "in a downbeat take as far as Spain goes," ANZ senior dealer Alex Sinton told Dow Jones Newswires.

"The issues are not going away (in Europe)," he added.

A senior trader at a major Japanese trust bank said: "Risk-on sentiment is spurring US dollar-buying." He said there was a fair chance the euro could breach $1.2800 and fall further.

After four years fighting the markets and a mushrooming economic crisis, Spain appears finally poised to cave in and apply for a sovereign bailout.

Major ratings agency Moody's is expected to announce soon the result of its review of Spain's credit rating for a possible downgrade.

Market reactions were muted to Japanese reports that Prime Minister Yoshihiko Noda is to appoint 65-year-old lawmaker Koriki Jojima as the new finance minister replacing Jun Azumi as he reshuffles his cabinet Monday.

Jojima's appointment will not move markets as he is likely to keep the status quo and follow his predecessor's handling of financial affairs, said Masashi Murata, senior currency strategist at Brown Brothers Harriman.

"Jojima is consensus-driven and prioritises party-unity -- he doesn't seem to have a clear vision when it comes to economic policy," Murata said.