The yen lost ground in Asian trade Tuesday as the Bank of Japan chief vowed to press ahead with "aggressive" monetary easing to combat the deflation that has haunted the country's economy for years.
The dollar was changing hands at 89.56 yen in Tokyo from 89.45 yen in New York Monday afternoon, while the euro also gained on the Japanese currency at 119.93 yen from 119.65 yen.
The euro was stronger at $1.3391 from $1.3376 in US trading.
Tokyo's benchmark Nikkei index hit a 32-month high in Tuesday morning trade as the yen continued its decline.
The falling yen is good news for exporters which are hurt by a strong currency as it makes their products less competitive overseas and erodes the value of repatriated foreign income.
Bank of Japan (BoJ) governor Masaaki Shirakawa said Tuesday that Japan faced the challenge of ending deflation as part of a bid to return to healthy growth in the world's third-largest economy.
"The BoJ will pursue aggressive easing in a continuous manner through a combination of virtually zero interest rates and a steady increase in its asset purchase programme," Shirakawa told the BoJ's quarterly regional executives' meeting, referring to the bank's key policy tool.
His comments are not new, but they fuelled speculation that the central bank will boost its easing measures after a policy meeting next week.
The BoJ has been under heavy political pressure ahead of the January 21-22 meeting as Prime Minister Shinzo Abe, who took office last month, presses the bank to adopt an annual inflation target of two percent as part of his plan to inject life into the moribund economy.
On Friday, Japan's new government unveiled a $226.5 billion stimulus plan with spending aimed at job creation, rebuilding disaster-hit areas after the 2011 quake-tsunami disaster and beefing up the military.
A senior dealer at a major Japanese trust bank said Tuesday the dollar may test the key 90-yen level.
"The yen has weakened quite a bit in a short period of time," he said.
"While the pair may test the 90 mark later, I doubt it will rise to the 100 mark, say, in a month."
The euro has been surging since late last week when European Central Bank chief Mario Draghi said there was "a significant improvement in financial market conditions" in the single currency bloc.
Markets were also keeping a close eye on US December retail sales data to be released later Tuesday, which covers the key holiday-shopping season.
-- Dow Jones Newswires contributed to this article --