The Chinese yuan held steady against the dollar in offshore trade before a widely expected cut in the country's benchmark loan prime rate later on Thursday.
The yen was initially bought as a safe-haven asset when the outbreak of the virus in the central Chinese province of Hubei roiled financial markets last month.
However, yen buying is starting to fade as growth in the number of new cases of the virus in mainland China starts to slow. Signs that Chinese officials are ready to take more drastic measures to support companies hit by the virus is another factor that has reduced demand for safe-haven investments.
"The yen's fall was so sudden that it could bounce back slightly in the very short term," said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.
"However, sentiment is leaning away from risk-off because China will pull out all the stops to support its economy."
The yen
Japan's currency tumbled 1.3% on Wednesday, its biggest daily decline since August, after triggering stop loss orders following the expiry of options that had kept the yen in a narrow range versus the dollar, according to Ishizuki.
In the offshore market, the yuan
The People's Bank of China is expected to cut its benchmark rate on Thursday, which would follow a cut the interest rate on its medium-term lending on Monday.
China's manufacturing sector is gradually coming back on line after the outbreak of the virus led to temporary factory closures and severe travel restrictions, but many companies and households are likely to struggle due to income lost because of the illness.
China reported on Thursday a drop in new cases of the flu-like virus, and while many investors are sceptical of China's reporting methodology, the data has helped risk appetite improve in the currency market.
The Swiss franc
Many traders say they remain cautious because the previously unknown virus has resulted in more than 2,000 deaths in China and spread to 24 other countries.
The euro
The pound
(Reporting by Stanley White; Editing by Sam Holmes)
By Stanley White