The Australian dollar hit multi-year peaks on the yen and held close to multi-month highs on the US dollar on Monday as a change of government in Japan raised the prospect of more aggressive monetary stimulus.
The dollar struck a 19-month high of 89.08 yen, before pulling back to 88.47, weighed by profit-taking in euro/yen.
The Aussie has gained 12 per cent so far this year and a break of 90.04 yen, the May 2011 peak, would test 2008 levels. Immediate support was found around 88 yen.
The broad fall in the yen followed the return to power by Japan's conservative Liberal Democratic Party (LDP) on Sunday, giving ex-Prime Minister Shinzo Abe a chance to push his "unlimited" monetary easing.
The Bank of Japan meets later this week and is under intense pressure to expand its debt buying, so creating more yen.
Traders stressed there was scope for a yen rebound in the very near term.
"It's almost certain the Aussie will go to 90 yen, but in the interim, positions are far too stretched one way," said David Scutt, a trader at Arab Bank Australia.
"The market wouldn't be doing its job if it didn't test some of the weak longs established in recent days," he said, seeing 87.80 as a key level tested several times.
Against the US dollar, the dollar took a breather at $US1.0539, from $US1.0557 in NY on Friday, having climbed last week to a three-month high of $US1.0585.
The local currency is up one per cent so far this month, underpinned by hefty gains in commodities. The price of iron ore, Australia's top export earner, has climbed 50 per cent from its September lows to almost reach $US130 a tonne.
Immediate support was initially found at $US1.0510, with $US1.0585 as immediate resistance ahead of key barriers at $US1.0625, the September peak.
Australian government bond futures firmed but remained near 4-month lows as the contracts rolled over from December to March. The three-year bond contract rose 0.045 points to 97.245, having touched 97.160, its lowest since August.
The 10-year contract added 0.035 points to 96.680 after slipping as far as 96.650.