Japanese monetary authorities are expected to step into the currency market soon to try to lift the dollar against the yen so as to help protect Japanese exports.
They worry that a stronger yen could choke off growth in what have been the main factor leading Japan's economic recovery.
The dollar fell as low as 119.51 yen this morning, a fresh two-month low, leaving the market nervous about when Japanese monetary authorities may intervene.
Dealers said the outlook for the dollar was increasingly bearish due to the US Federal Reserve's surprising half-point rate cut last Wednesday, tensions surrounding Iraq and volatility in the US equity market.
Officials at Japan's Ministry of Finance (MOF) are growing tense about the yen's current level. Its forex chief, Mr Haruhiko Kuroda, said today the yen's recent sharp rise against the dollar had been totally inappropriate, and the ministry would take necessary action on exchange rates.
The dollar's level against the yen is already well below Japanese exporters' expectations.
Big manufacturers used an average rate of 120.82 yen to the dollar for October-March, the second half of the business year, for their sales and profit forecasts, according to the Bank of Japan's latest "tankan" quarterly survey of corporate sentiment, issued in early October.