The dollar jumped Wednesday after Tokyo stepped into the market to stem the appreciation of the yen against the US unit.
The yen had earlier surged to a 15-year high 82.86 against the dollar before triggering a yen-selling intervention from Japanese authorities at around 0130 GMT.
The Japanese unit then tumbled to 84.85 in the afternoon, off the intraday low of 85.13 and sharply down from 83.06 in New York.
The euro was at 1.2982 dollars from 1.2994 and 110.17 yen from 107.90 in New York.
“We conducted a market intervention,” Finance Minister Yoshihiko Noda told reporters. “We will continue to monitor the movement of the market and take determined steps, including intervention, when necessary.”
Traders said the intervention continued even as the dollar climbed above 84 yen, and the authorities may seek to drive the dollar above 85 yen.
In a statement Bank of Japan governor Masaaki Shirakawa said uncertainty over the US economy meant downside risks to Japan “warrant attention.”
“The Bank of Japan strongly expects that the action taken by the Ministry of Finance in the foreign exchange market will contribute to stable foreign exchange rate formation,” he said.
News of the Japanese intervention also sent the dollar higher against other currencies, in particular the euro and the British pound.
Asian currencies also fell quickly, as analysts say that Asian central banks now may have a stronger argument to weaken their own currencies and boost the competitiveness of their own export sectors.
The US unit rose to 1,161.40 South Korean won from 1,160.85 on Tuesday, to 44.38 Philippine pesos from 44.20, and to 8,970.00 Indonesian rupiah from 8,957.50.
It was flat at 1.3369 Singaporean dollars and 31.77 Taiwan dollars.
It eased to 30.70 Thai baht from 30.79.
The move came one day after Prime Minister Naoto Kan reaffirmed his leadership in a ruling party election victory, seeing off a candidate outspoken in his calls for intervention to help safeguard Japan’s recovery.
Some analysts however expressed scepticism that Japan’s move would result in a weaker yen against the dollar on a sustained basis, as the United States and Europe continue to take easy monetary policy.
“Intervention can’t stop the trend and certainly can’t reverse it,” Richard Yetsenga, a Hong Kong-based forex strategist with HSBC, told Dow Jones Newswires.