The Japanese yen plunged against the U.S. dollar on Tuesday to its lowest level since October 1998, as the Bank of Japan's ultra-loose monetary policy was in stark contrast with an aggressive Federal Reserve determined to stamp out soaring inflation.
The yen dropped to a new 24-year low, extending losses which have already seen it shed more than 18% of its value versus the greenback this year.
"You're still looking at a trade where there is aggressive tightening by the Fed while the BoJ has yet to really budge. There is potential here to see a further leg of weakness in the yen," said Edward Moya, senior market analyst, at OANDA in New York.
The currency lost more ground after the BoJ on Friday dashed any expectations of a change in policy and continued to stand alone among other major central banks in its commitment to ultra-easy monetary settings.
Instead it has been ramping up bond-buying to hold 10-year yields in a targeted 0% to 0.25% range. But despite its efforts, the yield remains at the upper end of that target.
Earlier in the day, Japanese Prime Minister Fumio Kishida effectively gave the green light to sell yen when he said the BoJ should maintain its ultra-loose monetary policy. He brushed aside calls for the policy to be tweaked to target rising living costs.
The yen's decline was also accelerated by some stop-loss orders broken around the 135.60 level, according to analysts, who noted New York traders had been absent on Monday, a U.S. public holiday.
By midmorning trading, the Japanese currency was at 136.41 yen per U.S. dollar.
The yen has lost more than any other major currency against the greenback, as the BoJ's dovish policy stance diverged from the general hawkishness among global policymakers.
In other currencies, the dollar index was down 0.3% at 104.38, with the euro firmer on the day, at $1.0536, up 0.3%. The European single currency rose after European Central Bank Chief Economist Philip Lane said the ECB will raise interest rates by 25 basis points at its July meeting, but the size of its September hike is still to be decided, suggesting a larger 50 basis point hike could be in the cards.
Sterling also rose against the dollar, up 0.2% at $1.2271 on hawkish comments from Bank of England policymakers. BoE chief economist Huw Pill said on Tuesday the central bank would need to raise interest rates further in the near future to tackle surging inflation.