The yen is a whisker away from tumbling to its lowest rate in 20 years against the dollar in a slide that threatens to turn what some see as an opportunity for Japan into an economic and financial headache for Asia and possibly beyond.

Caught in the crossfire between the two wildly different monetary policy regimes in Tokyo and Washington, at one point Thursday, the Japanese currency was less than ¥1 away from its 2002 low of ¥135.15 per dollar. Investors have been ramping up their short bets as the Bank of Japan keeps local yields capped to boost a sputtering economy while Treasury equivalents climb on expectations interest rates will raise.

The danger is that the yen keeps slipping toward 150, levels last seen in 1990, and a figure some say would spur intervention whether or not by Japan itself, or lead to China and other Asian nations devaluing their currencies to avoid losing out in export competitiveness.