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The yen firmed against the dollar and the euro on Tuesday while commodities from gold to oil extended their sharp declines after investors dumped risk assets overnight, worried over slowing growth in China and the US took hold.
Cash gold and US gold futures plunged to their weakest in over two years, pulling silver lower and dragging Tokyo gold futures down almost 10%.
Spot gold was down 1.9% to $1,327 an ounce while silver shed nearly 2% to $22.11. On Monday, the price of gold bullion tumbled another $125 per ounce in its biggest-ever daily loss. In percentage terms, Monday's 9% loss would be the biggest since 1983.
Brent crude futures fell below $100 for the first time in nine months early on Tuesday and US crude futures slipped 2.2% to a four-month low of $86.87 a barrel.
"Price actions point to a full-fledged flight of funds out of gold markets," said Naohiro Niimura, a partner at research and consulting firm Market Risk Advisory in Tokyo.
"Broadly, risk markets had been rallying at a pace not in line with a tepid global growth recovery, so in a way, they are trying to revert to levels more in line with fundamentals. It's time to book profits from recent rallies and hoard cash."
Investors will likely reassess their portfolio allocations for the second quarter, with Japan possibly surprising on the upside while uncertainties deepen in the European and Chinese economies. The US may be starting to feel the pain of its fiscal contraction, reversing Wall Street after US equities hit record highs in recent days.
"Gold stands to lose the most," Niimura said, as a progress in fiscal consolidation will boost the allure of US debt, reducing demand for an alternative safe-haven such as gold.
The dollar fell to a low of 95.67 yen and the euro also hit a low of 125 yen earlier but the dollar managed to recoup some of its losses and was last at 96.93 yen, while the euro also recovered to 126.40 yen.
"It seems investors will remain ready to sell any risk assets this session, the way markets tumbled broadly. Assets with large positions being built up will be squeezed out," said Hiroshi Maeba, head of FX trading Japan for UBS in Tokyo, noting that equities had been rallying recently on growth optimism.
"In this light, the yen may firm a bit more given the way the currency's short positions had built up," he said, adding that a temporary jump to the 94 level against the dollar could be possible in volatile conditions.
A US regional manufacturing report on Monday showed the pace of growth slowed, the latest indication the world's biggest economy lost some steam heading into the second quarter. The weak US report followed news the Chinese economy unexpectedly stumbled in the first three months of 2013.
The MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.3%, falling 0.9% on Monday. Its materials sector was again the worst performer by far, slippingg 1.7%.
Resources-reliant Australian shares were down 0.6%.
Japan's Nikkei average fell 1.3%, weighed by the yen's rebound and weakness in Wall Street ovenright, where US stocks dropped more than 2% and the Standard & Poor's 500 index had its worst day since November 7.
Two simultaneous explosions ripped through the crowd at the finish line of the Boston Marathon on Monday, killing at least two people and injuring more than 130. US stocks extended their losses as the news compounded already jittery markets.
