The yen hit a three-month intraday low of 122.78 to the dollar in Tokyo interbank trading Thursday, compared with 121.17-20 late Wednesday.
The downtrend in the yen's value gathered momentum as the Bank of Japan pursued an ultra-easy money policy, signaling to the marketplace that it intends to guide the nation's short-term interest rates effectively to zero.
Counting on wider interest rate differentials between Japan and the United States, market participants have turned bullish for the dollar, said Naohiko Nakajima, a vice president at Bank of America.
At 5 p.m., the dollar stood at 122.57-60 yen, up sharply from 121.17-20 yen late Wednesday. The dollar is now expected to hit 128 yen in the near range, half-way between 108.21 yen, where it began the year, and its eight-year high of 147.64 yen reached last summer, Nakajima said.
Alerted by a sudden upswing in the nation's long-term interest rates earlier this year, the BOJ lowered its target for the unsecured overnight call money rate from 0.25 percent to 0.15 percent on Feb. 12.
An ample supply of money from the BOJ sent the call money rate, the most sensitive indicator of the direction in interest rates, plummeting to 0.02 percent Wednesday and Thursday.
In interdealer trading in cash bonds, the yield on the benchmark 10-year government bond dropped to the 1.5 percent level, down from the 2 percent level early last month.
Some analysts expressed skepticism about the central bank's unprecedented move, warning that the low money market rates will put a dent in the flow of money into the market and cause liquidity problems at some banks.
The BOJ's move is tantamount to a declaration that it has abandoned monetary policy, said Fumihiro Iinuma, general manager of the international treasury division at Dai-Ichi Kangyo Bank.