Tokyo exporters, however, limited the downside for the yen, showing strong dollar-selling interest ahead of the local fixing, after the safe-haven yen on Tuesday suffered its biggest one-day fall since Japan intervened in the market in October.
Japan logged an annual trade deficit in 2011 for the first time in over 30 years after the March earthquake, tsunami and nuclear crisis pushed up energy imports and the strong yen and supply chain disruptions weighed on exports.
Takuji Okubo, chief economist at Societe Generale in Tokyo, was sceptical the data would have a lasting impact on the yen.
"Japan's current account balance is still in surplus, as the income from Japan's vast foreign assets, both direct investment as well as its security investments, is more than offsetting the deficit from trade. In addition, capital flows are much more important for the yen than trade flows," Okubo said.
The dollar reached 77.89 yen on trading platform EBS, its highest level since Dec. 29.
Offers from exporters lurking ahead of 78 yen were seen capping gains in the greenback in Asian time. Chartists also pointed to a strong technical resistance area looming above 78.30 with the 61.8 percent retracement of the October-January fall coming at 78.31 and 200-day moving average at 78.35.
The euro hit a four-week high of 101.51 yen before steadying at 101.36. The pair was trading above 109 yen as recently as November, before falling to an 11-year of 97.04 on Jan. 16.
Many Japanese exporters set their euro rate targets at 105 yen, so the pair would run into heavy selling pressure ahead of that level, traders said.
EURO HOLDS STEADY
The euro fared reasonably well against the dollar after EU data showing a surprising strength in manufacturing and services this month held out hope the euro zone may escape recession.
Portugal also eased market jitters after its prime minister said the country was not seeking to renegotiate or extend its 78 billion euros bailout from its creditors.
The single currency stood at $1.3029, little changed from late New York levels and not far off a three-week peak of $1.3063 struck on Tuesday.
However, with no definite outcome on Greece's debt swap talks and the threat of the country's ratings being cut to 'selective default' by Standard & Poor's, the euro's outlook remains uncertain.
The Australian dollar gained 0.4 percent to $1.0529 , coming close to a three-month peak of $1.0574 set earlier in the week after a stronger higher-than-expected reading of underlying inflation.
While the IMF has joined a growing rank of doomsayers predicting a global recession stemming from Europe's debt crisis, there is no doubt that market mood has improved recently.
Some players say this shift in sentiment can be attributed to the European Central Bank's injection of nearly half a trillion euros of three-year funds into the banking system last month.
Along with another offering of such cheap money next month, this could buy the region more time to solve its debt crisis.
Meanwhile, the Fed will begin a new practice of announcing policymakers' interest rate projections when a two-day meeting ends on Wednesday.
Economists polled by Reuters expect the Fed will signal that it is unlikely to start hiking interest rates until the first half of 2014, more than five years after chopping them to near zero.