The yen plummeted to its lowest against the dollar in nearly four years and reached a three-year trough versus the euro on Monday after the Bank of Japan kicked off its aggressive monetary easing program in an attempt to beat persistent deflation.
Since Bank of Japan Governor Haruhiko Kuroda promised last Thursday to inject about $1.4 trillion into the economy in less than two years, the dollar has gained more than 6 percent against the yen while Japanese stocks have soared.
The BOJ conducted its first bond-buying operations on Monday, saying it would buy 1 trillion yen of government bonds with maturities between five and 10 years, and 200 billion yen of bonds with maturities exceeding 10 years.
The Japanese currency looked poised to extend its weakness, pushing the dollar above the significant 100 yen level as early as this week, analysts said. That would mark the weakest since April 2009 for the yen.
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"Today's price action looks like a continuation from what we saw last week, as investors are starting to position themselves for increased Japanese investment abroad," said Charles St-Arnaud, fx strategist at Nomura Securities in New York.
"I think that for now dollar/yen may take a breather, but reaching 100 this week is very likely," he said.
The dollar rose as high as 99.37 yen on Reuters data, the strongest level since May 2009, before pulling back slightly to trade at 99.34 yen, up 1.5 percent on the day.
Traders noted stops and option barriers at the psychologically important 100 level, and a break above could trigger further selling in the yen.
"Barring any sudden spike in risk aversion the pair is likely to roll through that level as momentum remains relentless for the time being," said Boris Schlossberg, managing director of FX Strategy at BK Asset Management in New York.
The euro rose as high as 129.23 yen, its highest since January 2010. It last traded at 129.20, up 1.9 percent on the day.
Analysts expect the flood of new money from the BOJ will be partly used by Japanese investors to buy higher-yielding assets abroad, putting further downward pressure on the yen.
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The higher-yielding Australian dollar hit its highest against the yen since July 2008, before the collapse of Lehman Brothers.
Some traders cautioned it was unclear whether the yen would maintain this pace of weakening, with the dollar having gained more than 14 percent already this year, and its decline could be tempered by further evidence of a slowing U.S. economy.
Data on Friday gauging the U.S. labor market showed weaker-than-expected payroll gains last month. The labor market is key to Federal Reserve policy, with the U.S. central bank expected to keep buying bonds until job growth shows persistent strength.
An increase in tensions surrounding North Korea could hurt investor appetite for risk and prompt selling of higher-yielding currencies against the yen, analysts said.
Against the dollar, the euro last traded at $1.3006, up 0.2 percent on the day, shrugging off concerns about Portugal's ability to keep its bailout program on track after a constitutional court rejected some of the government's austerity measures.
It had earlier risen to $1.3037, near a two-week high of $1.3039 set on Friday. Worries about Portugal were offset by sharp falls in the borrowing costs of Spain and Italy due to demand for higher-yielding euro zone bonds from Asia after the BOJ plan.
Analysts said that although the euro would be overshadowed for now by moves in the yen, the outlook for the single currency was clouded by concerns about economic slowdown in the euro zone and speculation the European Central Bank could ease monetary policy.