Trump said he would impose an additional 10% tariff on $300 billion worth of Chinese imports on Sept. 1 after U.S. negotiators returned from trade talks in Shanghai, saying China had failed to buy large quantities of U.S. agricultural products as promised.
China's onshore yuan slumped to its lowest since November 2018 as Trump's new levies would end a recent pause in a trade war that has forced Chinese policymakers to unleash stimulus to offset its slowing economy.
The British pound edged toward a 30-month low versus the dollar due to persistent worries about a no-deal Brexit and a cut in the Bank of England's economic forecasts.
Trump's surprise announcement sent shockwaves through global financial markets and wiped out the dollar's recent rally against the yen, made after U.S. Federal Reserve Chairman Jerome Powell indicated the central bank was not entering a prolonged easing cycle.
An escalation in trade friction between the world's two-largest economies threatens to bring further volatility to stocks and bond yields, which could weigh on the dollar and currencies from commodities exporters that trade with China.
"There was a speculative move to test the dollar/yen's downside, but it ran into a lot of real-demand bids," said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.
"Yen buying still has further room to run, especially against the crosses. Trump has given us plenty of reason to move to risk-off trades. The trade war will be in focus for some time to come."
Against the dollar, the yen jumped to 106.84, its strongest since June 25, before paring gains to trade at 107.06.
For the week the dollar was on course for a 1.5% decline versus the yen, its largest weekly decline since January.
The Chinese yuan slid over 0.7% to 6.95 per dollar in onshore trade and fell to 6.9756 in the offshore market.
The dollar index was steady in Asia at 98.417 after falling 0.15% on Thursday, its biggest daily decline in two weeks.
The benchmark 10-year U.S. Treasury yield dropped to 1.8750% in Asian trading, its lowest since November 2016 and the first time it has fallen below the technically significant 2% level in more than two years.
Falling Treasury yields initially put pressure on the dollar against the yen, but the yen then started to race higher against other currencies as the yuan fell and Chinese stocks weakened, analysts said.
Against the pound, the yen surged to 129.34, highest since November 2016, to then settle at 129.52.
Against the Australian dollar, the yen rose to 72.66, the highest since October 2011, before trading at 72.84.
Versus the New Zealand dollar, the yen jumped to 69.97, the highest in more than six years.
The pound, battered by the increasing likelihood that Britain will exit the European Union without a deal, came off a 30-month low, but had not turned positive in afternoon trade. It was last 0.2% lower on the day at $1.2103.
Sterling is down 2.3% this week, its biggest weekly decline since October 2017.
Later on Friday U.S. nonfarm payrolls for July are expected to show 164,000 new jobs were created, less than 224,000 new jobs created in the previous month.
Under normal circumstances, the nonfarm payrolls data would command traders' attention, but it risks being drowned out as investors track the impact of Trump's decision to impose more tariffs on Chinese goods.