Dollar Plunges to 2-Year Low Against Yen

The dollar fell as low as 108.89 yen at one point, the lowest since Sept. 5, 2005. The euro also kept rising to new highs against rose to US$1.4836 from US$1.4815.

"The next target, ultimately, would be 105 yen," said Shuichi Kanehira, senior trader at Mizuho Corporate Bank.

A sharp drop in Japan's Nikkei 225 average, which closed down 2.5 percent, prompted a wide range of players to buy the yen, traders said.

Long-term investors, including some Japanese investors, sold the U.S. currency for the yen, traders said. Faced with deepening uncertainties over the global credit and stock markets, investors probably were trying to cut some investments off their portfolios such as dollar-denominated bonds to hold more of their assets in cash, traders said.

"It's a kind of 'flight to quality,'" said Satoshi Okagawa, head of the foreign-exchange forward trading group at Sumitomo Mitsui Banking.

Asian-based investment funds and U.S. and European players sold dollars for the yen as well, traders said. Their selling may be partly due to speculation that concerns over the share markets will encourage global investors to further unwind yen-carry trades, traders said.

The carry trade involved borrowing yen at Japan's low interest rates and investing the funds in higher-yielding assets elsewhere. Reversing those trades means returning yen loans, which would boost the Japanese currency.

Against other regional currencies, the dollar was mostly higher, rising to 39.375 Indian rupees from 39.24 the previous day, and to 928.2 South Korean won from 922.4. It fell 7.7815 Hong Kong dollars from 7.7849, however.