The yen is set to go lower
The Japanese Finance Ministry has made clear it is happy to let the yen slide further.
The latest falls came as a Japanese research group said bankruptcies of firms listed on the Tokyo Stock Exchange had risen to their highest monthly level ever.
Total bankruptcies in November were 10% up on a year earlier.
"The yen was a bit too strong. Now it's started correcting itself," said the Finance Ministry's currency director, Haruhiko Kuroda, pointing to the weakness of the economy.
The yen's stumble began a week after Japan was officially confirmed in recession.
Centre-stage
That news drew the attention of international investors who had been more preoccupied since 11 September with the sickly state of the US economy.
They did not like what they saw and the yen began to slip, quickly reaching an eight-month low.
"Investors are realising that things are deteriorating in dramatic fashion in Japan," said Audrey Childe-Freeman of Canadian Imperial Bank of Commerce.
The worry is that the government of Prime Minister Junichiro Koizumi is backsliding on promises of economic reform.
Then, on Friday 14 December, the yen weakened as far as 127.95 to the dollar, punching its way past the previous three-year low of 126.84 recorded on 2 April this year.
Alarm
The rapid slide triggered a response from South Korean officials, who said they may intervene to protect the competitiveness of their export-driven economy.
South Korea "is closely watching the yen and ready to take action if necessary", said Kim Yong-duk, deputy minister at the Finance Ministry's International Affairs division.
"Weak currency policies are not desirable when the entire global economy is depressed," he complained.
Going under
Japan's crossed the line into recession last week, when official figures revealed its economy had been shrinking for six months.
Japan's gross domestic product (GDP) shrank by 0.5% in the July to September period compared to the previous three months, giving an annualised decline of 2.2%.
Business failures
The yen's fall on Friday was accompanied by bleak bankruptcy figures, showing 1,851 Japanese firms went bust in November, 10% more than in the same month last year and the fifth worst one-month toll since the end of the Second World War.
Four of these firms were listed on the Tokyo Stock Exchange, the highest ever toll of failures among listed firms in a single month, said Research firm Teikoku Databank.
Debate
Responding to the yen's decline, Finance Minister Masajuro Shiokawa urged the central bank to "increase its injections of liquidity" into the economy.
Injecting more money into the economy would make more available for banks to lend to struggling companies - the opposite solution to the crackdown on bad debt the international community wants to see.
The finance minister rejected another solution being touted to support the yen, saying the Bank of Japan should not buy more foreign bonds because it would look like a currency intervention.
The Bank of Japan's board is due to meet next week.
The yen was trading at 127.34 to the dollar at 11.30 GMT on Friday, or early evening in Tokyo.
"If you read between the lines of Japanese officials, there is a level of tolerance for a weaker currency and Japanese policymakers seem to be leaning towards a weaker yen," said Richard Burrows of Fuji Bank.