The Japanese yen fell to a fresh 24-year low in the 139 zone against the U.S. dollar in Tokyo on Thursday as hawkish remarks by a Federal Reserve official fueled speculation of a widening interest rate gap between Japan and the United States.
The Japanese currency briefly weakened to the upper 139 level against the dollar, falling as low as 139.69, its lowest level since September 1998, after hitting 139.38 on July 14.
At 5 p.m., the dollar fetched 139.28-29 yen compared with 138.91-139.01 yen in New York and 138.58-61 yen in Tokyo at 5 p.m. Wednesday.
The euro was quoted at $1.0029-0031 and 139.69-73 yen against $1.0048-0058 and 139.64-74 yen in New York and $1.0002-0003 and 138.62-66 yen in Tokyo late Wednesday afternoon.
Dealers said the yen later regained some ground against the dollar -- rising up to 139.03 -- following remarks by Chief Cabinet Secretary Hirokazu Matsuno, who called rapid foreign exchange rate movements "undesirable."
Japan's top government spokesman said at a press conference that currency rates should "move stably, reflecting economic fundamentals" and the government is "watching foreign exchange market moves with a high sense of urgency."
Tokyo stocks ended lower as investor sentiment was hurt by continuous falls in U.S. shares since late last week, and an overnight drop in European shares.
The 225-issue Nikkei Stock Average ended down 430.06 points, or 1.53 percent, from Wednesday at 27,661.47. The broader Topix index finished 27.67 points, or 1.41 percent, lower at 1,935.49.
On the top-tier Prime Market, decliners were led by marine transportation, electric appliance, and oil and coal product issues.
Investors unloaded the yen and bought the dollar after Cleveland Fed President Loretta Mester said Wednesday the U.S. central bank should raise its benchmark rate to above 4 percent by early next year from the current 2.25-2.5 percent, higher than the market's expectations of up to 4 percent, dealers said.
Mester also said she does not "anticipate the Fed cutting the Fed funds rate target next year," reiterating a hawkish stance that many Fed officials have been showing recently.
While Japan is likely to keep its ultraloose monetary policy at least until BOJ Governor Haruhiko Kuroda's tenure ends in April, "rising speculation of interest rate hikes in Europe and the United States resulted in yen selling," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co.
Expectations are growing that the European Central Bank will implement a 0.75 percentage point hike in next week's policy meeting amid rising inflation, analysts said.
Worries about a slowdown in the global economy due to monetary tightening weighed on the Tokyo stock market as well.
Technology shares drew selling, tracking overnight falls in their U.S. counterparts. Industrial robot maker Yaskawa Electric shed 85 yen, or 1.9 percent, to 4,495 yen, while its peer Fanuc dropped 120 yen, or 0.5 percent, to 22,415 yen.
Semiconductor equipment maker Tokyo Electron lost 1,480 yen, or 3.4 percent, to 42,680 yen.
Concerns over power shortages in Europe were rekindled after Russia's Gazprom said it has stopped energy supplies to the region for maintenance, weighing on stocks globally, brokers said.
Among Prime Market issues, declining issues outnumbered advancers 1,606 to 195, while 35 ended unchanged.
Trading volume on the Prime Market fell to 1,100.42 million shares from Wednesday's 1,332.18 million.
The yield on the bellwether 10-year Japanese government bond rose 0.015 percentage point from Wednesday's close to 0.235 percent, following an overnight increase in long-term U.S. Treasury yields.