The yen, Swiss franc and US dollar were expected to be supported as market players such as hedge funds and Japanese retail investors sought perceived safe haven currencies over stocks, commodities and growth-linked currencies.
The higher-yielding Australian dollar fell more than 2 percent against the US dollar, while the New Zealand and Canadian dollars also tumbled as market participants quickly moved to reverse previous long positions in those currencies.
"This will probably be a short, sharp correction, assuming things do not take a turn for the worse as regards the nuclear fallout in Japan," said ING currency strategist Chris Turner.
"Those currencies that people had been most overweight in, like Aussie and Canadian dollar, are the most exposed and are underperforming the most."
The dollar was down 0.3 percent at 81.32 yen, off a low of 80.60 yen hit on Monday -- not far from its record trough of 79.75 struck in 1995. The dollar also fell to a record low against the Swiss franc of 0.9197 francs, hit on trading platform EBS.
The yen earlier trimmed some of its gains as a 100-pip drop versus the dollar spurred vague talk of yen-selling intervention by Japanese authorities. Traders later said there was no intervention, but they were wary Japan may act to stem a sharp yen rise, especially if the dollar were to fall below 80 yen.
The yen had gained partly on expectations Japanese insurers and companies will repatriate funds to help pay claims and reconstruction costs.
Japan faced a potential catastrophe after a nuclear power plant exploded in the aftermath of Friday's earthquake and sent low levels of radiation floating towards Tokyo.
Also hit by risk aversion, the euro fell 0.75 percent to $1.3883 and more than 1 percent against the yen. However, losses may be limited due to expectations the European Central Bank could raise rates next month.
The Australian dollar slid to a seven-week low of $0.9861 against the US dollar and a three-and-a-half month low of 80.23 yen, according to Reuters data.
Data last week showed speculators increased bets in favour of the Australian and Canadian dollars and sharply trimmed bets in favour of the yen in the week to March 8.
FED MEETING EYED
Some analysts said yen gains may be limited as repatriation flows are offset by other factors.
"Foreign investors are heavily invested in Japanese stocks and for the moment that's leading to yen outflows which is helping to compensate for the expectation of yen repatriation," said Manuel Oliveri, currency strategist at UBS in Zurich.
One event that could lend some support to the dollar against the yen over the longer term is a US Federal Reserve policy meeting coming up later on Tuesday.
The Bank of Japan is even more dovish than the Fed, which has been cautious about seeking to exit its stimulus policy. The BOJ said on Monday that it would increase the size of its asset purchase to 10 trillion yen and analysts think it may take more steps if the economic outlook deteriorates further.
The dollar index, which measures its value against a basket of currencies, climbed 0.7 percent to 77.040, pulling away from a four-month low of 76.124 hit last week.
Implied volatilities in dollar/yen were still rising, with the one-month around 13.40 percent compared to 9 percent before the earthquake hit. Volatilities were still low compared to levels above 30 percent seen around the peak of the global financial crisis in 2008.