The euro climbed to a record high against the yen on Tuesday and gained on the dollar following a report showing that German business remained confident in its outlook.

The euro rose to ¥156.40 in currency trading on Tuesday, bringing its total 2006 gains to 12 per cent, and rose 0.3 per cent on the dollar to $1.3225.

The positive German Ifo survey bolstered confidence in the euro-zone and increased speculation that the European Central Bank (ECB) would continue to raise rates in 2007.

"Given the direction the ECB's monetary policy is seen heading now, the euro is on an upward trend," Masaki Fukui of Mizuho Corporate Bank told Reuters.

The yen declined against a basket of currencies yesterday after the governor of the Bank of Japan played down expectations of an increase in interest rates early next year.

Futures markets reduced the odds of a January rate increase from 70 per cent to 50 per cent following the conservative comments from governor Hidenori Kato.