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Dollar-yen breaches 110 for first time since 2008

The dollar hit a new high six-year high against the yen on Wednesday, breaching 110 for the first time since August 2008.

The currency pair reached 110.08 in early Asian trading, prompting a Japanese government spokesperson to say that authorities will monitor the yen's movement carefully.

The greenback has strengthened more than 8 percent against the yen since early August, driven by the Federal Reserve's tightening monetary policy and recent weakness in the Japanese economy.

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Japanese policymakers welcome a weaker yen, which boosts exports, but the rapid move is worrying. Japan is stuck with a chronic trade deficit; a major yen depreciation raises the cost of buying materials abroad, squeezing corporate earnings.

The dollar-yen could rise slightly further, but will stabilize soon, according to Eisuke Sakakibara, former vice finance minister of Japan.

"Although Japanese economy is currently somewhat weaker than anticipated, it's still doing fairly well," said Sakakibara, also known as Mr Yen for the influence of his pronouncements on Japan's currency when he was in office from 1997 to 1999.

10,000 Japanese yen and 100 U.S. dollar notes arranged for a photograph.
Tomohiro Ohsumi | Bloomberg | Getty Images
10,000 Japanese yen and 100 U.S. dollar notes arranged for a photograph.

"Continued weakness of the yen is unlikely; this is clearly the strength of the U.S. dollar. The market has already incorporated the strength of the U.S. dollar so I wouldn't think dollar-yen will go beyond 112 or 113 - It will be in range trading between 107 and 112 in my view," he added.

There have been increasing calls for policymakers to take further action to prop up the Japanese economy, which has been hit hard by a sales tax hike introduced in April. Fresh data on Tuesday showed a mixed reading – retail sales rose 1.2 percent on year in August, while household spending fell an annual 4.7 percent.

The Bank of Japan (BOJ) is due to meet next week and many analysts have penciled in a move from the central bank to ease monetary policy further. But Sakakibara believes BOJ governor Haruhiko Kuroda will reserve his ammunition for now.

Read MoreMrs. Watanabe jumps on yen-selling bandwagon as tide turns

"Mr. Kuroda is reserving additional monetary easing until next year because 2015 will probably see the consumption tax raised to 10 percent, so some sluggishness in the economy will be anticipated," said Sakakibara. "Mr. Kuroda will come in that time, likely first half or second half of next year."

The government raised nationwide sales tax to 8 percent from 5 percent in April in a bid to reduce the country's hefty debt pile, estimated to be more than double its gross domestic product.