LONDON: The dollar slumped below 100 yen on Wednesday after Japanese Prime Minister Shinzo Abe's announcement of his new growth policies fell short of market expectations and led to a sell-off in equities.
The Japanese currency, which tends to gain in times of financial uncertainty, also rose on fresh concerns that the US Federal Reserve might pare back its stimulus programme and that this could prompt funds to leave the Asian region.
The euro meanwhile was flat on the day against the dollar at $1.3075. Euro zone business activity data indicated that an economic recovery was still some way off and kept alive chances of more interest rate cuts by the European Central Bank.
The dollar was down 0.3 percent to 99.75 yen, retreating from an earlier high of 100.47 yen. A reported option expiry at 100 yen could keep the currency close to that level.
"The comments from Abe lacked some of the detail the market had been looking for and left it disappointed and we see that coming through in equity markets," said Ian Stannard, head of European FX strategy at Morgan Stanley.
"That has put dollar/yen under pressure and it could likely continue to extend the current move lower."
The Nikkei closed down 3.8 percent, while European shares opened the day lower.
Stannard said a move below Monday's low of 98.86 yen, could open the door to further losses in the dollar which could slip towards the 96 yen level.
Abe said he aims in the next decade to increase gross national income by 3 percent and to double foreign direct investment.
"The forex market is tightly correlated with the stock market at the moment, which is very choppy. It also seems that some people had high expectations for Abe's speech, but all positive factors were eventually exhausted," said Yoh Nihei, senior FX market analyst at Citi.
Against the yen, the euro was down 0.4 percent at 130.35 yen, not far from Monday's low of 129.49 yen which was acting as near-term support.
The dollar index was at 82.764, down 0.7 percent on the week and not far from a one-month low of 82.428 hit on Monday after dismal US manufacturing data argued against the Fed unwinding its stimulus programme just yet.
That put Friday's US non-farm payrolls (NFP) in the spotlight. A report by payrolls processor, ADP, due later on Wednesday, will be closely watched for clues on the NFP.
"A stronger (jobs) number could intensify the Fed stimulus tapering debate and the dollar could some support on that," Morgan Stanley's Stannard said.
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