The South Korean won also took a beating on rising concern that Asia's fourth largest economy would suffer disproportionately from a global downturn.
Contributing to the sharp fall on the Japanese equities market, the yen gained strength as investors who had binged on the low-yielding currency unwound their risky bets.
The euro slumped to 123.60 yen, a level not seen since December 2002. It rebounded to 124.57 in Tokyo afternoon trade, still well down from 125.82 in New York late on Wednesday.
The single European currency slipped briefly to US$1.2726 (S$1.90), the lowest level since November 2006, down from 1.2867.
'People are concerned about the financial crisis globally, especially in Europe. That tends to weaken the euro against the dollar', said Ms Tomoko Fujii, head of economics and strategy at Bank of America in Tokyo.
The European Central Bank has room for several further interest rate cuts, which would mean the euro would no longer be as attractive compared with the dollar and yen, she said.
Fears over European economies grew on Wednesday when Prime Minister Gordon Brown said the global economic downturn was 'likely to cause recession' in Britain, echoing comments by Bank of England chief Mervyn King.
The British pound rebounded to US$1.6275 in Tokyo trade, after hitting US$1.6139 on Wednesday, the lowest level since September 2003.
'Everyone wants to say that the US economy is weak and that's true, but the surprise has been how weak the European economies are,' said Mr Patrick Bennett, currency strategist at Societe Generale in Hong Kong.
Some dealers said the euro could still drop much more against the yen.
'The euro has been sold too much, but it looks like it will fall further because there are no factors to support it now,' Mr Masanobu Ishikawa, a manager at Tokyo Forex and Ueda Harlow, told Dow Jones Newswires.
The Japanese currency held on to its sharp recent gains against the dollar, which slipped to 97.44 yen, down from 97.79 in New York.
The yen cracked the 100-to-a-US dollar level earlier this week on risk aversion. The rise contributed to the sharp drop on equities markets on Thursday as a stronger yen makes Japanese exports less competitive.
Official data released on Thursday showed Japan's trade surplus plunged 94 per cent in September from a year earlier amid sluggish exports.
'What the trade data suggests is that when the markets stabilise and look back at fundamentals, I think that the yen will find it difficult to live at a level stronger than 100 to the US dollar,' Mr Bennett said.
The South Korean won plunged to 1,409.45 to the US dollar, down from 1,368.97 the day before.
The US dollar was also higher than other Asian regional currencies.
It climbed to 9,955 Indonesian rupiah from 9,825, to 34.665 Thai bhat from 34.475, to 33.40 Taiwan dollars from 32.93, to 1.5019 Singapore dollars from 1.4980 and to 48.99 Philippine pesos from 48.66. -- AFP