The yen fell to a 4-1/2-year low against the dollar on Friday as Japanese investors dumped their low-yielding currency for foreign assets and market players kept using the unit to fund carry trades.
The Australian dollar struck a 16-year peak against the yen and sterling hit a 15-year high as traders cited steady foreign currency buying by new Japanese investment trusts drawing in funds from households receiving summer bonuses.
The dollar held broad gains made after a survey of US Philadelphia-area factory activity posted the strongest growth since April 2005, reinforcing expectations the Federal Reserve will keep interest rates on hold at 5.25 percent.
The Bank of Japan is expected to boost interest rates as early as August to a 12-year high of 0.75 percent, but the yen continued to suffer as Japan's interest rates are much lower than those for other major currencies. "A series of investment trust funds for Japanese individual investors is on sale this week as well as next week, and that may push the yen to fall further," said currency strategists at J.P. Morgan Chase in a note to clients.
J.P. Morgan Chase estimated the size of yen selling for this week and next could amount to 500 billion yen, or about $4 billion. Total foreign asset holdings of investment trusts have surged by 5.725 trillion yen in the first five months, or nearly $10 billion each month - putting constant downward pressure on the yen.
The dollar rose roughly 0.15 percent from late US trade to 123.90 yen on electronic trading platform EBS, holding near a session high of 123.97 yen that was the highest since December 2002. The euro was up 0.2 percent at 165.97 yen on EBS, edging towards the all-time high of 166.12 yen hit earlier this week.
A trader at a Japanese trust bank said he saw constant flows from investment trusts buying the euro and currencies of emerging markets that have become popular recently.
The higher-yielding Australian and New Zealand dollars have long been favourites of Japanese investors and are used for carry trades - selling low-yielding currencies like the yen in order to buy higher-yielding currencies. The Australian dollar rose as high as 104.95 yen its highest level in 16 years, while the kiwi hit the highest level in 20 years at 94.72 yen
The kiwi changed hands near $0.7640 close to the 22-year peak of $0.7660 struck the previous session as traders kept an eye out for potential selling intervention from the New Zealand central bank following such action in the past two weeks. Sterling hit a fresh 15-year high of 246.92 yen.
The euro was little changed at $1.3395 on EBS after dipping to $1.3372 the previous session as an unexpectedly large gain in Philadelphia Fed's regional factory index provided a mild boost to the dollar.