The yen tumbled to a 20-month low in Asian trading Wednesday on expectations that newly elected Japanese premier Shinzo Abe would push for aggressive monetary easing to boost the sluggish economy.
The greenback bought 85.33 yen in Tokyo afternoon trade after topping 85.00 yen for the first time since April 2011.
The US unit briefly surged as high as 85.35 yen, well above a postwar low of 75.32 yen hit late last year as markets turned to the yen as a safe-haven from turmoil in debt-hit Europe and a slowing global economy.
The yen's weakness also stemmed from minutes of the Bank of Japan's November policy meeting, released Wednesday, which hinted at further easing measures, dealers said. Easing tends to weigh on a national currency.
The euro, meanwhile, was also stronger against the Japanese currency at 112.41 yen from 111.77 yen on Tuesday while it bought $1.3191 from $1.3180.
The sagging yen gave Tokyo's stock market a boost as it helps Japanese exporters by making their products more competitive overseas and raises the value of firms' repatriated foreign income.
Tokyo's benchmark Nikkei 225 stock index closed up 1.49 percent Wednesday as exporters gained on the weakening yen.
The Japanese currency has been on the decline after Abe, whose Liberal Democratic Party won a landslide national election last week, stepped up pressure on the central bank to take bold easing steps.
"The bottom line is that the dollar will likely rise further next year amid expectations that the Fed will exit loose monetary policy earlier than the BoJ," Osao Iizuka, head of forex trading at Sumitomo Mitsui Trust Bank told Dow Jones Newswires.
Abe was named prime minister in parliament Wednesday, after he swept to power on a hawkish platform of getting tough on diplomacy while fixing the economy with active fiscal spending and monetary easing.
On Sunday, he threatened to change a law guaranteeing the central bank's independence if it did not agree to set a two-percent inflation target, in a bid to drag Japan out of the deflation that has haunted its economy for years.
Last week, Japan's central bank launched its third major round of easing since September, after its counterparts in the US and Europe also unleashed huge measures. The move was widely seen as a bow to Abe's pressure campaign.
Abe, who previously served as prime minister from 2006 to 2007, is expected to name Taro Aso, another former prime minister in Japan's revolving-door political system, as both his deputy and finance minister, reports said.
As premier in 2008-2009, Aso launched a series of economic stimulus packages worth hundreds of billions of dollars.
The new government in Tokyo has announced a spending package worth about $118 billion to help inject some life into the world's third-largest economy.
But the longer-term impact on the yen could be a loss of faith in the currency in the midst of heavy political pressure to stoke inflation, said Mizuho Securities chief market economist Yasunari Ueno.
"I wonder if this recent yen weakening is gradually changing in nature to a 'bad yen weakness' due to the damage done to trust in the yen on the back of a mere correction from excessive yen strength," he said.
The dollar was mixed against other Asia-Pacific currencies, easing to 1,073.28 South Korean won from 1,074.15 won on Tuesday and to Tw$29.03 from Tw$29.05.
The greenback strengthened to 30.65 Thai baht from 30.63 baht, to 54.99 Indian rupees from 54.96 rupees, to 9,811 Indonesian rupiah from 9,794 rupiah, to 41.16 Philippine pesos from 41.13 pesos, and to Sg$1.2247 from Sg$1.2215.
The Australian dollar bought US$1.0363 from US$1.0372 while China's yuan rose to 13.65 yen from 13.56 yen.