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London - The yen tumbled from near record highs on Thursday after Japan intervened to curb the currency's export-damaging strength, while concerns about slowing global economic growth pushed world stocks towards the previous day's 2011 low.
Japan spent an estimated 1 trillion yen ($13bn) to sell the yen in Tokyo and London trading hours and is likely to leave extra liquidity from the intervention in the system. The Bank of Japan pledged to ease monetary policy further to bolster growth by buying assets such as stocks and bonds.
Japan's action follows an unexpected interest rate cut by Switzerland to weaken its currency on Wednesday.
Investors anticipate the Federal Reserve and the Bank of England may need to adopt fresh rounds of quantitative easing.
Speculation that the European Central Bank may resume its bond buying provided only a brief support for the market as the focus quickly shifted back to concerns about peripheral euro zone countries.
"This is going to be a long and drawn out campaign, since, for Japan, the Fed is more likely to cut than hike interest rates and thus the dollar remains pressured and for the Swiss there seems no resolution to the euro zone debt crisis," said Chris Turner, chief currency strategist at ING.
The dollar rose more than 4% to 80.24 yen , having fallen as low as 76.29 on Monday.
The MSCI world equity index was down 1% on the day, although it stayed above the previous day's 2011 low. The index is on track for its biggest weekly gain in a year.
European stocks lost 0.9% while emerging stocks fell 1.2%. U.S. stock futures were down 1%, pointing to a weaker open on Wall Street.
Speculation the Fed may buy Treasuries again contributed to a turnaround on Wall Street on Wednesday as the previous round involving $600bn bond buying which ended in June supported risky assets.
Last year's Japanese FX intervention and easing by the Federal Reserve led to Brazil's finance minister Guido Mantega to declare a "currency war" was erupting as developed economies sought to weaken their currencies to support export growth.
This in turn boosted hot money inflows to emerging countries, fanning inflation and helping trigger interest rate rises by some central banks.
There were signs that some emerging economies were joining the developed world's attempt to guide their currencies weaker. Turkey surprised investors by cutting interest rates on Thursday, while Russia refrained from raising the cost of borrowing this week, both citing economic risks.
"It seems a fresh chapter is opening up in the currency wars, with both Japanese and Swiss officials trying to draw lines in the sand regarding the strength in their currencies they are prepared to tolerate," Turner said.
US crude oil lost 1.1% to $90.87 a barrel.
The dollar rose 1.1% against a basket of major currencies. The euro was down 0.7% at $1.4233.
Europe debt worries
Speculation that the ECB may resume its bond buying provided a brief support for the market before the focus quickly shifted to fears that peripheral euro zone governments may have difficulty in funding their deficits especially when the global economy is slowing.
Italy's 10-year government bond yield was above 6% while Bund futures erased early losses to gain 10 ticks.
Italy and Spain have been under increased pressure in recent weeks as markets feel the size of the euro zone's bailout fund is too small to protect larger economies if contagion from the Greek crisis cannot be stopped.
"It's just the fear factor and worries over both euro zone debt and the US economy. I think sentiment is definitely on that ilk at the moment and it's hard to see any justification at the moment to step in to halt the rot," Martin Dobson, head of trading at Westhouse Securities, said.
