The dollar hit a record low against the euro and a basket of currencies as expectations for a further Federal Reserve interest rate cut were reinforced by the central bank's projection that US economic growth will slow next year.
The yen held steady near its highest level against the dollar in 2-½ years as worries about credit markets and the health of the US economy kept investors wary of risky carry trades.
Many investors sat on the sidelines as regional stocks were mixed after a slump in Wall Street shares on Wednesday.
But market players were increasingly worried about widening mortgage-related losses at financial institutions and their impact on the broader US economy.
Sentiment for the dollar was further hurt after US Treasury Secretary Henry Paulson told the Wall Street Journal on Tuesday that the number of potential US home loan defaults will grow significantly in 2008.
Traders said further sharp currency moves are likely in the near term because of thin liquidity, as US markets are closed on Thursday for the Thanksgiving holiday and may be lightly staffed on Friday. Japanese financial markets will be closed on Friday for a national holiday.
'The market is now closely watching what the authorities in Japan and Europe have to say about their rising currencies as the yen approaches the psychologically key 105 yen (against the dollar) and the euro nears $1.50,' said Kengo Suzuki, a currency strategist at Shinko Securities.
The dollar was up slightly from late US trade on Wednesday at 108.80. It recovered from a low of 108.29 yen hit earlier in the session on buying by Japanese institutional investors and stayed above its 2-1/2-year low of 108.25 yen hit on electronic trading platform EBS the previous day.
The euro edged up 0.1 percent to $1.4870 and hit a record high of $1.4872 on EBS.
The dollar sank to a record low of 74.918 against a basket of six major currencies.
Traders see 107.50 yen as the next resistance level for the yen's rise, and a jump beyond the psychologically key 105 zone would open up a test of the Japanese currency's 2005 peak of 101.67.
'The momentum for the yen's rise is still strong, but it is difficult to see how much more it can go,' said a senior trader at a Japanese bank.
'I am unsure whether the dollar/yen range will go lower to 105-110 yen or stay in the 108-113 yen range.'
Analysts said a further slump in global stock markets could trigger another wave of unwinding of carry trades as investors buy back low-yielding currencies such as the yen, which had been sold to fund buying of higher-yielding currencies.
The Nikkei share average was up 0.2 per cent as of 0332 GMT after starting the session at a 16-month low.
The US currency remained close to an all-time low struck earlier against the Swiss franc at 1.1006 francs on EBS.Reuters