The yen's slide continued in Asia Thursday, plunging to a more than two-year low against the dollar after a new Japanese government took power with promises of big spending and central bank easing.

Against the dollar, the Japanese unit tumbled as low as 85.87, its weakest since September 2010. It also lost ground against the euro at 113.55 yen from 113.19 yen in US trading, while the European single currency was slightly down against the dollar at $1.3228 from $1.3230.

Dai Sato, senior vice president of foreign exchange at Mizuho Corporate Bank, told Dow Jones Newswires that it would “not be surprising” if the dollar climbed above the 86 yen level in Thursday's session.

The dollar hit a postwar low of 75.32 yen late last year as markets turned to the Japanese currency as a safe-haven from turmoil in debt-hit Europe and a slowing global economy.

The yen's recent weakness gave Tokyo's benchmark Nikkei 225 a lift Thursday with the index jumping to its highest levels since last year's quake-tsunami disaster.


Central bank easing - a key plank of the new government's plans - tends to weigh on the yen, while a weaker currency is good news for Japanese stocks as it makes exporters' products more competitive overseas.

Speculation was rife that the Bank of Japan would launch more easing measures as Japan's new prime minister Shinzo Abe and his Liberal Democratic Party swept to power on promises to fix the economy with big government spending and to pressure the central bank for more aggressive policy action.

“A strong economy is the source of Japan's national strength. Without a strong economy, Japan will not achieve fiscal reconstruction and have a future,” Abe told a late-night news conference Wednesday after parliament elected him as the country's leader.

Former premier Taro Aso, Abe's pick as his deputy and finance minister, told finance officials Thursday that the BoJ had been “slow to react” on tackling the deflation that has plagued Japan's economy for years.

Markets were also keeping a close eye out for developments on averting the fiscal cliff package of tax hikes and spending cuts due to come into effect on January 1 unless divided US lawmakers strike a new budget deal.

There are widespread fears the package would drag the world's biggest economy into recession, dealing a major blow to global growth.

The dollar was mixed against other Asia-Pacific currencies, slipping to 1,072.03 South Korean won from 1,073.28 won on Wednesday and to Sg$1.2230 from Sg$1.2247.

The greenback also fell to 54.76 Indian rupees from 54.99 rupees and to 9,808 Indonesian rupiah from 9,811 rupiah. It firmed to 41.18 Philippine pesos from 41.16 pesos while staying flat at Tw$29.03 and at 30.65 Thai baht.

The Australian dollar eased to US$1.0355 from US$1.0363 while China's yuan rose to 13.73 yen from 13.65 yen. -Sapa-AFP