The dollar was on track for its biggest daily drop in more than five weeks against the yen on Thursday after a sharp slide in Japanese stocks and weak Chinese factory activity data prompted a rush for the safe-haven Japanese currency.
The yen also rallied versus the euro and other currencies, further buoyed by a jump in 10-year Japanese government bonds yields, to 1.000 percent, the highest in a year.
China's factory activity shrank for the first time in seven months in May, a survey showed, deepening fears that China's economic recovery has stalled and a sharper cooldown may be imminent.
(Read More: Outlook for China's Economy Just Keeps Getting Worse)
Concerns that U.S. monetary stimulus could be scaled back, sparked by Federal Reserve Chairman Ben Bernanke's testimony on Wednesday, also weighed on markets and drove Japan's Nikkei share index down 7.3 percent on Thursday, its biggest one-day drop since a slide two years ago in the wake of the tsunami.