The yen tumbled on Thursday as Japanese authorities intervened to curb its recent gains, though gold stayed near a record high on uncertainty over whether the European Central Bank would join the fray by resuming bond purchases to fight a crisis of confidence.
A day after the Swiss National Bank unexpectedly cut rates to weaken its currency, the yen skidded around 3.0 percent against the dollar on the back of repeated yen selling by Japan, which fears a stronger yen will impede its economic recovery.
The Bank of Japan later in the day said it would ease policy further to bolster growth, pledging to buy more assets such as stocks and bonds.
The weaker yen buoyed shares of big Japanese exporters, driving the Nikkei share average <.N225> up 0.2 percent, on a day when the rest of the region fell around 1.4 percent, weighed down by worries that the U.S. economy is stalling and may even be in danger of slipping back into recession.
European shares were seen likely to open higher as well, though the focus will be squarely on the outcome of the ECB's policy meeting due at 1145 GMT and ECB President Jean-Claude Trichet's news conference at 1230 GMT.
Interventions by the Swiss and Japanese may increase pressure on them (the ECB) a little, and indeed on the EU too, said Christopher Gothard, head of FX for Brown Brothers Harriman in Hong Kong.
The ECB however has been marching to its own tune of concerns about inflation pressures and we don't expect a huge turnaround in posture from them just yet.
The global economic slowdown and debt market turmoil meant the ECB would probably hit the pause button on further interest rate increases, but it might signal a readiness to buy bonds again.
Increased activity by authorities in the past 24 hours to curb gains in what were considered the safest currencies in the G10 has made traders nervous that policymakers were cracking down simultaneously in markets.
The New Zealand dollar dropped further from a 30-year peak set on Monday after the country's finance minister said he preferred the currency to be weaker.
Other Asian authorities were also seen likely to continue intervening to slow gains in their currencies.
The uncoordinated move risks competitive intervention, especially in Asia, said Andy Ji, Asian currency strategist at Commonwealth Bank of Australia in Singapore.
The dollar rallied to a high of 79.40 yen, from near 77.00 before the intervention, while the euro surged to 113.36 yen, from around 110.70.
Reports of a merger between two Japanese industrial giants, Hitachi Ltd <6501.T> and Mitsubishi Heavy Industries Ltd <7011.T>, to create one of the world's largest infrastructure firms further supported Japanese stocks.
But other stock markets in the region struggled as worries about slowing global growth sapped investor enthusiasm.
MSCI's broadest index of Asia Pacific shares outside Japan <.MIAPJ0000PUS> shed more than 1 percent, taking losses to more than 5 percent in three days.
South Korea's KOSPI <.KS11> was among the biggest losers, falling about 2.4 percent to well below its 200-day moving average for the first time in over a year. Foreign sellers dominated for a third session.
Markets are also awaiting results of a Spanish bond auction after yields on Spanish and Italian bonds jumped in recent sessions on fears those economies would be engulfed by debt problems.
The BOJ noted tensions in Europe's debt markets and ongoing worries about the U.S. debt problem as it eased monetary policy by boosting its asset buying scheme.
Latest U.S. figures continued to paint a somber picture for the U.S. economy with the pace of growth in the services sector falling in July to its lowest since February 2010, while new U.S. factory orders also fell in June.
The reports followed poor figures on U.S. consumer spending and factory activity. That, along with the festering European debt crisis, is likely to keep buyers cautious.
Still, with the SNB and BOJ injecting a fresh round of liquidity into markets and talk of possibly more quantitative easing (QE) from the Fed, this could set the stage for a rebound in riskier assets in coming weeks.
Former top Fed officials were quoted in a Wall Street Journal article saying the Fed should consider a third round of bond purchases if inflation slowed from recent elevated levels and if the economy continued to underperform.
I don't think QE3 is quite on the table yet in the United States, but the market will be thinking it's possible if required. All those things do suggest we shouldn't be getting too risk negative, said Greg Gibbs, a strategist at RBS.
Among other commodities, copper climbed 0.2 percent to $9,556 a tonne, while U.S. crude slipped 0.4 percent to $91.57 a barrel.