The yen dropped to the mid-140 zone against the U.S. dollar on Friday in Tokyo, as it continues to fall to levels not seen in nearly a quarter of a century amid growing expectations that the Federal Reserve will continue aggressive interest rate hikes.
Tokyo stocks ended lower on the view that higher borrowing costs in the United States will slow down the world's largest economy and weigh on global growth. But they narrowed their losses in the afternoon as investors refrained from bold moves ahead of U.S. employment data to be released later in the day.
The Japanese currency, which has plunged by 25 yen against the dollar this year, depreciated to a fresh 24-year low of 140.43 after stronger-than-expected U.S. manufacturing data for August, released Thursday, fueled market expectations of the Fed's additional rate hikes to fight surging inflation.
At 5 p.m., the dollar fetched 140.24-26 yen compared with 140.15-25 yen in New York and 139.28-29 yen in Tokyo at 5 p.m. Thursday.
The euro was quoted at $0.9988-9989 and 140.08-12 yen against $0.9941-9951 and 139.37-47 yen in New York and $1.0029-0031 and 139.69-73 yen in Tokyo late Thursday afternoon.
"Strong data means the U.S. economy is firm, fanning speculation that interest rate hikes may continue long-term," said Yukio Ishizuki, a senior foreign exchange strategist at Daiwa Securities Co.
Some market participants had expected the Fed to shift into a rate-cut mode next year, Ishizuki said. They are set to keep buying the dollar by pricing in a rate hike to above 4 percent from the current range of 2.25 percent to 2.5 percent.
That would widen interest rate differentials between the United States and Japan as the Bank of Japan is widely expected to maintain its ultraloose monetary policy until at least next year to help ensure post-pandemic growth, dealers said.
On the stock market, the 225-issue Nikkei Stock Average closed down 10.63 points, or 0.04 percent, from Thursday at 27,650.84. The broader Topix index finished 5.32 points, or 0.27 percent, lower at 1,930.17.
Stocks were mostly directionless throughout the day as investors awaited U.S. nonfarm payrolls data for August due Friday for cues to the Fed's policy meeting later this month, analysts said.
On the top-tier Prime Market, decliners were led by oil and coal product, air transportation, and iron and steel issues, while retail, insurance and bank issues were among major gainers.
Energy issues met selling after reports that China may reinstate regulations to curb coronavirus infections stirred investor concerns that such a move would slow economic activity and weaken energy demand, analysts said.
Oil explorer Inpex sagged 13 yen, or 0.8 percent, to 1,544 yen, while refiner Eneos Holdings lost 2.7 yen, or 0.5 percent, to 511.5 yen.
Bucking the downward trend, retailer issues gained ground on strong department store sales data for August.
Isetan Mitsukoshi Holdings climbed 22 yen, or 2.0 percent, to 1,128 yen, while J. Front Retailing gained 23 yen, or 2.1 percent, to 1,139 yen.
Among Prime Market issues, declining issues outnumbered advancers 1,096 to 650, while 91 ended unchanged.
Trading volume on the Prime Market fell to 1,030.61 million shares from Thursday's 1,100.42 million.
The yield on the bellwether 10-year Japanese government bond was unchanged from Thursday's close at 0.235 percent.
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