The yen fell to its lowest against the dollar in nearly four years on Monday and reached a three-year trough versus the euro after the Bank of Japan, in an attempt to eradicate persistent deflation, kicked off an aggressive program of monetary easing.
Since BoJ Governor Haruhiko Kuroda promised last Thursday to inject about $1.4 trillion into the Japanese 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.
Given a cautious track record, the BoJ last week surprised many market participants who had been expecting a less ambitious endeavour. The bond-buying program is tantamount to printing money and therefore dilutes the value of the currency. The Japanese currency appears poised to extend its weakness, with the dollar expected to rise above the 100 yen level as early as this week, analysts said. That would mark the weakest since April 2009 for the yen.
"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, forex strategist at Nomura Securities in New York.
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 99.28 yen, up 1.8 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 129.08, up 1.8 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. 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 US economy.
Against the dollar, the euro last traded at $1.3004, up 0.1 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.