The yen soared to a record high against the dollar as Japanese stocks drooped Thursday, erasing a portion of the gains from the day before as the country struggled to contain a post-earthquake nuclear crisis.
The dollar was trading at 79.18 yen in Asia after plunging to 76.53 yen late Wednesday in New York -- far below the previous all-time low of 79.75 yen set April 1995.
Major natural disasters like earthquakes tends to bolster the yen because investors expect the Japanese public and insurance companies to buy back their home currency in order to fund the country's reconstruction, increasing demand for the yen.
Many analysts have said they expected the Bank of Japan to sell dollars in an attempt to weaken the Japanese currency if the dollar dropped below 80 yen. A strong yen hurts the Asian country's exporters, potentially deepening any hit to the economy from the earthquake and lingering nuclear crisis.
The benchmark Nikkei 225 shed 2.1 percent to 8,903.86. That wiped out some of the gains from Wednesday's rally, which followed a sharp plunge in prices the previous two days. Japan's devastating earthquake, tsunami and nuclear crisis last week triggered widespread selling, wiping out all the stock market's gains this year.
The post-quake plunge prompted extraordinary government efforts to reassure investors and keep markets functioning to support recovery. Japan's central bank has pumped cash into Tokyo's money markets for three days in a row, a total liquidity injection to 55.6 trillion yen ($688.3 billion) since Monday. The Tokyo exchange's president also publicly appealed for calm.
"Growing uncertainty over the nuclear plant really spooked investors, promoting them to adjust positions and buy back the yen," said Masatoshi Sato, market analyst at Mizuho Investors Securities Co. Ltd.
"Foreign investors continued to dump stocks on growing fears over the nuclear accidents. Also investors are worried that the quake and the nuclear disaster could surely dent economic growth," Sato said.
The index had shed more than 1,600 points, or 16 percent, Monday and Tuesday as worries over the nuclear crisis triggered widespread selling.
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