The Japanese yen slumped to the 130 range against the dollar on Thursday for the first time since April 2002, after the Bank of Japan maintained its ultraeasy monetary policy at its board meeting in sharp contrast to the U.S. central bank that has raised interest rates.
The yen was trading in the upper 130 range in the afternoon in Tokyo, plunging from the lower 128 zone quoted in the morning after the BOJ underlined its resolve to keep rates at rock-bottom levels.
The Japanese currency's freefall was unabated in London later in the day, briefly hitting the 131 level for the first time in 20 years.
At the end of the two-day policy meeting, the BOJ said it will conduct certain operations to purchase Japanese government bonds from financial institutions every business day to stem a rise in long-term yields and support the economy still recovering from the COVID-19 fallout.
The Japanese currency, which was trading in the 115 range against the dollar at the beginning of the year, has been plunging on prospects of a widening interest rate gap between the United States and Japan.
In contrast to the BOJ, the U.S. Federal Reserve raised interest rates in March for the first time in four years to curb inflation and is expected to lift rates further this year.
"The BOJ didn't just maintain its monetary easing but in a way strengthened it by offering to buy an unlimited amount of bonds," said Takuya Kanda, senior researcher at the Gaitame.com Research Institute.
"The move made the strong impression on investors that the BOJ's policy is heading in the exact opposite direction from other major central banks," he added.
At 5 p.m., the dollar fetched 130.59-60 yen compared with 128.38-48 yen in New York and 127.98-128.00 yen in Tokyo at 5 p.m. Wednesday.
The euro was quoted at $1.0554-0556 and 137.83-87 yen against $1.0554-0564 and 135.57-67 yen in New York and $1.0623-0625 and 135.96-136.00 yen in Tokyo late Wednesday afternoon.
While a weaker yen boosts exporters' profits earned overseas when repatriated, it could also slow economic growth with higher import costs for energy and food, weighing on consumer spending.
Prime Minister Fumio Kishida said Tuesday that rapid currency moves are "unfavorable" for many parties concerned, while Finance Minister Shunichi Suzuki has also warned recently of the fast pace of the yen's fall.
At a press conference after the policy meeting, BOJ Governor Haruhiko Kuroda said it is "desirable that currency moves are stable" as excessive fluctuations make it difficult for companies to draw up business plans.
But he also said that it is "appropriate" to continue with the central bank's powerful monetary easing.
The yield on the benchmark 10-year Japanese government bond fell 0.030 percentage point from Wednesday's close to 0.215 percent as investors bought the debt following the BOJ's announcement of bong-purchasing operations, dealers said.
Tokyo stocks, meanwhile, ended Thursday sharply higher as automakers and other exporters jumped on the yen's fall.
The 225-issue Nikkei Stock Average ended up 461.27 points, or 1.75 percent, from Wednesday at 26,847.90. The broader Topix index finished 38.86 points, or 2.09 percent, higher at 1,899.62.
Toyota Motor gained 70.0 yen, or 3.2 percent, to 2,235.5 yen. Honda Motor surged 128 yen, or 3.9 percent, to 3,419 yen, while Nissan Motor rose 17.8 yen, or 3.6 percent, to 517.0 yen.
The market was also supported by a slew of upbeat earnings reports from major Japanese companies.
Among Prime Market issues, advancing issues outnumbered decliners 1,503 to 295, while 40 ended unchanged. Gainers were led by iron and steel, transportation equipment and mining issues.
Trading volume on the Prime Market fell to 1,383.63 million shares from Wednesday's 1,655.61 million.