Dollar hits lifetime low vs euro on subprime jitters

Broader yen gains were short-lived however, with the ultra-low yielding currency sliding to record lows versus the euro as investors remained skeptical on the chances of an August BOJ rate increase.

Analysts had expressed surprise at the yen's initial rebound as BOJ policymakers voted 8-1 to keep rates on hold, a sign that monetary tightening may be at least a couple of months away.

The dollar's selloff this week was triggered by reports from credit rating agencies Standard & Poor's and Moody's Investors Service on Tuesday that warned of downgrades to more than $17 billion of debt related to risky mortgages, much of it subprime.

This has prompted interest rate futures markets to go back to pricing in a Fed rate cut later this year. That is eroding the dollar's yield appeal as other central banks, such as the European Central Bank, Bank of England and eventually the BOJ are in tightening mode.

(Additional reporting by Vivianne Rodrigues in New York and Veronica Brown in London)