The yen surged against the dollar and euro on Thursday as fears of a financial meltdown in Cyprus spurred investors to sell riskier trades funded by the low-yielding Japanese currency.
The euro fell for a third day out of four this week against the dollar, partly also hit by disappointing euro zone economic data, though it recouped some losses in afternoon trade.
The European Union gave Cyprus till Monday to raise the billions of euros it needs to secure an international bailout or face a collapse of its financial system that could push it out of the euro currency zone.
"There's obviously some risk aversion based on the Cyprus situation," said Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York.
The yen tends to strengthen in times of market stress, behaving like a "safe haven" currency, as investors sell assets like stocks and higher-yielding currencies and buy back the yen.
The prospect of further aggressive monetary easing in Japan has made the yen a favorite funding currency for such trades.
The dollar fell 1.2 percent to 94.89 yen, having fallen as low as 94.56 yen, according to Reuters data. At current prices, it's on track for the biggest daily drop since Feb. 25.
Against the dollar, the euro slid 0.3 percent to $1.2896, moving away from a session low of $1.2879 but not far from a near four-month trough of $1.2843 hit on Tuesday. Near-term support lay around the 200-day moving average for the euro against the dollar around $1.2877, with most investors looking to sell into any bounce toward the $1.30 level.
Data showing the euro zone's economic downturn deepened, even before Cyprus' bailout debacle, added to worries about the bloc's growth outlook and also pressured the single currency.