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TOKYO — The dollar sank to a fresh 14-year low against the yen Friday but rallied against the euro and other currencies as jitters about Dubai's debt problems sparked a rout in global stock markets.
Worried about another financial crisis, some investors bought the yen as a perceived safe haven. But others opted to buy dollars and shun the euro on concerns about the exposure of European banks to Dubai.
Japanese Finance Minister Hirohisa Fujii called the yen's surge "a very serious situation." He said Tokyo will take appropriate measures as needed, suggesting that Japan may cooperate with the U.S. and Europe to calm foreign exchange markets.
"I am monitoring the situation very carefully," Fujii said.
The dollar briefly touched 84.81 yen — the lowest since mid-1995 — in early trading before bouncing back to 86.49 yen. The euro, meanwhile, weakened to $1.4899 from $1.5021 late Thursday.
Concerns about debt problems afflicting Dubai have caused investors to flee riskier assets. Dubai World, a government investment fund with debts totaling around $60 billion, has asked creditors if it can postpone payments until May.
The move toward higher-yielding investments in emerging markets had been growing recently on hopes the world was recovering from the financial crisis. But Dubai's problems have reminded investors of the risks involved, said Minoru Shioiri, chief manager at the foreign exchange section of Mitsubishi UFJ Securities in Tokyo.
"Everyone wants to pull back on the risks, cash in on investments in emerging markets and make an exit," he said.
The strong yen hurts Japan's big exporters, and general investment jitters caused investors to dump stocks across Asia and Europe.
But Richard Jerram, economist Macquarie Securities in Tokyo, questioned the logic of buying yen due to worries about Dubai.
"If you're looking for safe havens, people should be buying dollars," he said.
Instead, traders are likely buying the yen because they remain unconvinced that Japanese authorities will intervene in the currency market to stem the yen's appreciation. Japan hasn't done that since March 2004.
"There's a sense that it's a one-way bet," Jerram said. "There's a perception that the government will do nothing about it."
Expectations that U.S. interest rates will remain extremely low have weighed on the dollar recently.
The dollar has steadily dropped much of this week after minutes from the latest U.S. Federal Reserve board meeting suggested the central bank wasn't worried about the dollar's decline and that it plans to keep interest rates at "exceptionally low levels" for an "extended period." Currently the Fed funds rate stands at a range between zero and 0.25 percent, one of the lowest in the world.
Japan's business executives are clearly worried about the yen's appreciation, which cuts into foreign income, on top of falling prices and general weakness in consumer spending.
Fujio Mitarai, chairman of Keidanren, Japan's largest business lobby, urged the government to take action.
"In the midst of deflation, such a sharp rise in the yen is a very serious problem and could drag down the economy," Mitarai told reporters.
Associated Press Writers Yuri Kageyama and Tomoko A. Hosaka contributed to this report.
