NEW YORK (Bloomberg) — The yen tumbled to the lowest in almost four years against the dollar, logging a second straight weekly loss, after the Bank of Japan left interest rates unchanged.The yen sank against all 16 major currencies and posted the biggest weekly drop in almost two months against the euro. The yen’s declines versus the dollar and euro deepened as central bankers in the US and Europe expressed concern that inflation remains a threat.

“The prospects continue to be favourable for the dollar against the yen,” said Alan Kabbani, a senior currency trader at Wachovia Corp. in Charlotte, North Carolina. “I am a bit disappointed by the BOJ.”

The Japanese currency fell 0.8 percent to 121.24 yen per dollar this week. It touched 121.60 yen on January 18, the weakest since March 2003. The yen may fall to 125 yen per dollar in the next two months, according to Kabbani.

The yen dropped 1 percent this week to 157.08 per euro, the biggest decline since the week ended December 1. The currency also fell to the weakest in almost a decade versus Australia’s dollar.

Japan’s 0.25 percent benchmark rate, the lowest among major economies, encourages investors to borrow yen and invest in higher-yielding currencies, in a practice known as the carry trade. The US key rate is 5.25 percent, compared with 3.5 percent in the euro region and 6.25 percent in Australia.

The Swiss franc, another currency investors use to fund the carry trade, declined this week to the lowest against the euro since 1999, the year the 13-nation euro debuted. The Swiss benchmark rate is 2 percent.

The BOJ has held rates unchanged since boosting its benchmark by a quarter-percentage-point in July, the first increase in almost six years.

Governor Toshihiko Fukui said following the rate decision that the central bank had no schedule to raise rates.

“Appetite for the carry trade has returned once again with the BOJ keeping rates on hold” said Niels From, a currency strategist at Dresdner Kleinwort in Frankfurt. This has kept “low-yielding funding currencies such as the Swiss franc and the yen under pressure”.

The yield advantage of US 10-year Treasuries over comparable-maturity Japanese government debt widened to 3.11 percentage points yesterday, the most since September. A larger yield difference dims the appeal of yen-denominated assets.

Hedge-fund managers and other large speculators placed a record amount of bets the yen will fall against the dollar, according to data from the US Commodity Futures Trading Commission last week.

The difference in the number of wagers on a decline in the yen compared with those on a gain — so-called net shorts — jumped to a record 138,146 for the week ended January 16, compared with net shorts of 123,343 a week earlier.

The dollar also gained this week as signs of quicker growth pushed traders to erase bets the Federal Reserve will cut borrowing costs this quarter.

The Reuters/University of Michigan’s preliminary index of consumer sentiment for this month surged to a three-year high of 98 from 91.7 in December, according to a report yesterday.

US builders broke ground on new homes at an annual rate of 1.642 million last month, up 4.5 percent from November’s pace, the Commerce Department said this week. Jobless claims fell to an 11-month low, separate data showed. A Fed report also showed Philadelphia-area manufacturing expanded this month.

“The US economy is in much better shape than many people expected, which is giving the dollar support,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “You will continue to see the dollar rally over the next few months.”