Japan's central bank sold its own currency to stem its rapid rise against the U.S. dollar. It is the first such market intervention in six years pushed the dollar up sharply.
The dollar quickly rose to almost 85 yen, after hitting a low of 82.87 yen earlier.
Japanese Finance Minister Yoshiko Noda confirmed that the Bank of Japan dumped yen and bought dollars as currency trading opened in Tokyo Wednesday morning.
Noda says authorities will continue monitoring the market's movement and take further steps, if necessary.
The yen reached a new 15-year high against the dollar Tuesday, after Japanese Prime Minister Naoto Kan survived a party leadership challenge.
A strong yen hurts Japanese exports at a time when its economic recovery is stalling. Japan has in the past guarded its competitiveness by intervening in the currency market. The yen's strongest point against the dollar was at 79.95 in 1995.
The Nikkei average jumped almost three percent on the news, with shares of large exporters Sony, Kyocera and Toyota rising.
Wednesday's move is the first intervention in six years. The Bank of Japan did not reveal how many dollars the bank bought, but said it will continue to pump ample liquidity into the financial market.
Financial analysts, however, say the effectiveness of Japan's action depends on the movement of other currencies and the actions of other nations.
The euro has languished because of high European fiscal deficits and public debt. China has been buying Japanese government bonds in large numbers in recent months to diversify its foreign exchange reserves away from the dollar, but that also pushed up the yen. Moreover, the dollar remains weak because of the U.S. economic slowdown.
Other Asian currencies, including the Korean won and the Singapore dollar fell after the intervention, as investors speculated that other central banks would intervene to keep their currencies and the price of their exports in line.
The South Korean won fell Wednesday, as did the Australian dollar. But the Chinese central bank set the yuan's reference rate against the dollar higher for the fourth straight trading day.
Gold held steady on Wednesday, a day after recording its biggest one day price gain in four months. The metal, considered a safe haven investment in times of economic uncertainties, has risen 16 percent this year and is trading at around $1,270 an ounce.