The yen tumbled to a more than two-year low against the dollar and a 16-month trough versus the euro Wednesday after Japan's new prime minister repeated his vow to battle deflation and a strong Japanese currency.
Expectations that Shinzo Abe, who assumed Japan's helm Wednesday, will force the Bank of Japan to ease monetary policy further have caused steep losses in the yen, putting it on track for a drop of more than 10 percent this year, the biggest since 2005.
Trading volume was light as many global financial centers remained closed for the Christmas holiday. All Group of 10 markets except Japan were closed Tuesday, and only Japanese and U.S. markets were open Wednesday.
Abe promised aggressive monetary easing by the Bank of Japan and big fiscal spending by the debt-laden government to fight deflation and weaken the yen to make Japanese exports more competitive. Investors will wait to see if the talk will be backed by policy action.
"Since the yen's sharp sell-off has come mostly from jaw-boning on the part of Mr. Abe, the yen could soon find its scope for further depreciation may slow in the absence of policy initiatives by the country's new administration," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.