The dollar’s rise against the yen abated in Tokyo trading Thursday, as dealers finished squaring their position at the eruption of the U.S.-Iraqi conflict.

Dollar-buying on expectations of a quick resolution — two to three weeks — to the conflict sent the U.S. unit as high as 120.55 against the yen in early Tokyo trading, but U.S. President George W. Bush’s statement that the war could last longer slowed the greenback’s rise in afternoon trading.

Dollar-buying was also tempered by domestic exporters’ dollar-selling in the lead up to the end-of-year book-closing, currency watchers said.

The dollar was trading at 119.87-119.90 yen at 5 p.m., compared with 120 yen.50-60 in New York and 118 yen.74-77 in Tokyo at the same time Wednesday.

Currency watchers said the dollar may become even weaker in the long term as economic factors in the United States appear dismal.

“I see little reason for another strong round of dollar-buying over the long term,” said Daisuke Uno, market analyst at Sumitomo Mitsui Banking Corp. “It’s clear the U.S. has lost its ability to lead the United Nations. When attention is finally focused back on the U.S. fiscal and current accounts deficit, that will damage the dollar.”

Any diversion from markets’ expectations of a two to three week resolution to the conflict will further limit the dollar’s rise, he said.

Few deny that the postwar rebuilding process in Iraq will be difficult, expensive — estimated to cost some $100 billion — and a large burden without the support of the United Nations.

A prolonged conflict may push the dollar as low as 115 yen, strategists said, adding this would likely trigger intervention on the part of the Finance Ministry.

Toru Umemoto, currency strategist at Morgan Stanley, said he sees a quick resolution to the conflict, with attention shifting to North Korea in the medium-term through June. This will contribute to the strength of the dollar relative to the yen, he said.

But at the bottom half of the calendar year, markets will shift their focus on the U.S. economy, he said.

“I fear that once the bloom wears off, we’ll see a weak-backed economy, even with the risks of war and high oil prices removed,” he said, adding that he expects the dollar to fall to 110 yen.

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