The dollar slipped back below the key 100 yen level on Wednesday as sharp falls on global stock markets restored some of the Japanese currency's safe haven appeal, dealers said.
The euro meanwhile dipped against the dollar as worries deepened about the health of eurozone economies.
In morning trading here, the dollar fell to 99.69 yen, down from 100.38 in New York late on Tuesday.
The European single currency retreated to 1.3212 dollars from 1.3273 dollars on Tuesday.
Investors bought the Japanese currency as stocks fell sharply across Asia and Europe, tracking heavy overnight losses on Wall Street.
"As equities have fallen and risk aversion has nudged higher, the foreign exchange market has returned to form, once again favouring the 'safe-haven' dollar and yen," said Calyon analyst Stuart Bennett.
Although the yen has lost much of its allure recently due to Japan's deep economic slump, it is still seen as a less risky investment than many other currencies during times of uncertainty.
On Friday, the dollar had topped 100 yen for the first time in five months.
Pressure on the euro was magnified by expectations that interest rates in the 16-member eurozone will continue to fall, dealers said.
"Among the majors, the strongest selling pressure now is on the euro, because there are still concerns about defaults (among European banks) and the European economic fundamentals are bad," Hideki Amikura, deputy general manager of Nomura Trust and Banking, told Dow Jones Newswires.
The Eurostat statistics agency reported the eurozone economy shrank 1.6 percent in the fourth quarter of 2008 as exports collapsed -- worse than an earlier estimate of a 1.5 percent contraction.
The news sparked speculation that the European Central Bank will lower interest rates again, after cutting its key interest rate by a smaller-than-expected quarter point on April 2, to a record low 1.25 percent.
Meanwhile, Bank of England policymakers sat down Wednesday for a two-day meeting after which they were widely forecast to leave British interest rates at the current level of 0.50 percent, analysts said.
In trading in London on Wednesday, the euro was changing hands at 1.3212 dollars against 1.3273 dollars late on Tuesday, at 131.51 yen (133.25), 0.9001 pounds (0.9012) and 1.5148 Swiss francs (1.5162).
The dollar stood at 99.69 yen (100.38) and 1.1482 Swiss francs (1.1431).
The pound was at 1.4601 dollars (1.4727).
On the London Bullion Market, the price of gold rose to 887 dollars an ounce from 879.75 dollars an ounce late on Tuesday.
