The Japanese yen tumbled Tuesday to its lowest level against the dollar since late November, pressured by worries about Japan's economic and political outlook.
The currency traded at 96.51 yen to the dollar, compared to 94.69 yen in North American activity late Monday. The dollar bottomed at around 87.11 yen in January.
The yen also skidded about 2% versus the euro, with the single currency rising to 122.74 yen.
The yen's recent decline underlines the tarnishing of its status as the ultimate safe-haven currency, strategists said.
For the much of the latter half of last year and early 2009, the U.S. dollar and the Japanese yen had both strengthened during periods of increased financial turmoil and economic uncertainty, boosted by repatriation flows.
The yen, however, was the biggest beneficiary of all, outperforming the greenback since the collapse of Lehman Brothers last autumn.
But strategists have noted a significant weakening of that relationship in recent weeks, with attention increasingly turning to a deepening Japanese recession and falling approval ratings for Prime Minister Taro Aso.
"The dollar is virtually the only safe-haven currency left," said Kenneth Broux, an economist at Lloyds TSB.
"Japanese economic fundamentals are truly dire and continuing to worsen," said Callum Henderson, currency strategist at Standard Chartered.
"Until recently, that did not seem to matter because the Japanese yen was being supported by repatriation and deleveraging," he wrote in a research note.
At the same time, recent data on foreign participation in Japanese money markets indicate that deleveraging has largely run its course, Henderson said. Also, weekly investment data show that Japanese investors are looking to invest abroad, while trade figures illustrate successive deficits.
A growing 'weariness'
Michael Woolfolk, currency strategist at Bank of New York Mellon, said the yen's inability to rally on the dollar as equity markets sank back to new lows Monday reflected the increased "weariness of investors" as Japanese woes mount.
Concerns rose following the resignation last week of Japan's finance minister, he said. Investors also downgraded the country's economic outlook after fourth-quarter gross domestic product registered a 12.7% annualized decline. See full story.
The dollar index , a measure of the greenback against a trade-weighted basket of rival currencies, rose to 87.555 from 87.226 late Monday.
The dollar remained higher after Federal Reserve Chairman Ben Bernanke told Congress that the bigger risks to the economy are still on the downside.
If actions taken by the Obama administration and the Fed are successful in restoring some measure of bank stability, "there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery," Bernanke said in testimony delivered on Capitol Hill. See full story.
The dollar lost ground versus the euro in earlier trading but recently was little changed at $1.2718.
The single currency appeared to get a lift mainly from position-squaring following the dollar's push higher late Monday, strategists said.
The currency pair has remained largely range-bound and the outlook for the euro remains negative amid a continued lack of clarity over how the European Union plans to aid euro-zone countries that run into trouble meeting financing obligations, Broux said.
Also Tuesday, markets registered little reaction to a decline in the Ifo Institute's index, which tracks the business climate in Germany, to a record low for February.
