The U.S. dollar and euro fell sharply against the yen in late afternoon trade on Monday as uncertainty about Italy's elections and sharp losses in stocks led investors to unwind trades funded in Japan's currency.
Conflicting early forecasts of the result of Italy's election on Monday raised the specter of deadlock in parliament. The election's outcome holds the key to whether the current reform program will continue uninterrupted in the euro zone's third-largest economy.
"It's just a continuation of renewed political risk in Italy," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
None of the four main groups running in the Italian parliamentary election is likely to win a majority in the Senate, a projection for RAI state TV indicated on Monday.
Italy's center-left coalition holds a slim lead over former Prime Minister Silvio Berlusconi's center-right bloc in the election for the lower house of parliament, three TV projections indicated on Monday.
The euro was last down 0.9 percent to $1.3069 on Reuters data, the lowest since Jan. 8.
Against the yen, the euro was last down 2.5 percent to 120.11 yen, after having fallen to it weakest since Jan. 24.
The euro had earlier been sharply higher as a successful Italian bond sale and hopes of a center left government buoyed the currency, but that dissipated when the exit polls emerged.
The euro could continue to lose ground if risk appetite abates. U.S. President Barack Obama and Congress remain deadlocked over how to prevent $85 billion in automatic government spending cuts set to start taking effect on March 1.
The dollar was last down 1.7 percent to 91.82 yen, after earlier hitting its highest level in more than 33 months of 94.76 yen and then later a day's low of 90.92 yen, the lowest since Jan. 31, according to Reuters data.
Japan's prime minister is likely to nominate an advocate of aggressive monetary easing, Asian Development Bank President Haruhiko Kuroda, as the next central bank governor to step up his fight to finally rid the country of deflation.
Abe's repeated calls for more forceful central bank action are largely behind the yen's nearly 20 percent loss in value against the dollar since November.
"The news all but ensures that the BOJ will continue on an expansionary path of monetary easing to help kickstart the world's No. 3 economy," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
"Consequently, the yen remains vulnerable to continued losses across the board," he said.
Some analysts said the yen would remain on a weakening trend, although the dollar would face resistance at the psychologically important level of 95 yen.