TOKYO/SYDNEY (Reuters) - The dollar briefly crashed through the 115-yen level to its lowest since November 2014 on Tuesday, as a sell-off in European and U.S. stocks continued into the Asian session and stoked demand for the perceived safe-haven Japanese currency.

A passer-by is reflected on a signboard of a currency exchange service outside a bank in Tokyo November 27, 2014. REUTERS/Issei Kato

The dollar was last at 115.26 yen JPY=, down 0.6 percent, after dropping as low as 114.75.

“What a panic situation,” said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. “European funds have been selling dollar-yen since this morning, and it broke through the barrier options around 115.”

Three-month dollar/yen implied volatility - an indicator of how much currency movement is expected over the coming months - jumped as high as 12.137 percent JPY3MO= on Tuesday, its highest since September 2013, as the yen soared in spot foreign exchange trading.

With many Asian markets closed for the Lunar New Year holiday, thin conditions might have amplified trading moves, market participants said. Most markets in the region will re-open from Wednesday, with Chinese markets returning next week.

Investors will pay even more attention to U.S. Federal Reserve Chair Janet Yellen’s testimony to the House Financial Services Committee on Wednesday, for any clues on the strength of the U.S. economy that might underpin the dollar by keeping hopes alive that the central bank may continue on its rate-hiking path.

“The focus is now on Yellen’s comments tomorrow, and how she’ll respond to these latest market conditions,” Ogino said.

The euro added about 0.1 percent to $1.1208 EUR= after bouncing off Monday's low around $1.1086. The common currency benefited from a negative correlation with European stocks, which slumped to their lowest in more than two years.

Against the yen, however, the euro gave up about 0.5 percent to 129.09 yen EURJPY=.

The Swiss franc, another traditional safe haven, rose as high as 0.9836 CHF= against the U.S currency overnight, its loftiest peak in six weeks. The dollar was last down 0.2 percent at 0.9856 francs.

Japan's Nikkei .N225 was down 4.4 percent. MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was off 0.9 percent, and might have fallen further if not for holidays in many Asian financial centres.

On Monday, concerns over the health of the region's banks compounded worries over slowing global growth which prompted investors to dump financial stocks. Shares in Deutsche Bank DBKGn.DE dropped 9.5 percent, leading decliners on Europe's Stoxx 50 index .STOXX50. The U.S. S&P 500 .SPX fell 1.4 percent.

“We had brutal price action overnight with risk assets hammered while safe haven assets were bid. There was no clear catalyst for the sell-off, however market uncertainty has remained high,” said Rodrigo Catril, currency strategist at National Australia Bank.

Not helping sentiment, figures released over the weekend showed China’s foreign reserves fell for a third straight month in January, as the central bank dumped dollars to defend the yuan and prevent an increase in capital outflows.

“Question marks still remain over China’s ability to control its currency, even though the fall in FX reserves was smaller than expected,” Catril added.

The flight-to-safety was particularly evident in the Australian dollar’s performance against the yen, a pair which is often viewed as a barometer of risk appetite.

The Aussie has shed more than 3 percent over the past three sessions, and was down 1.2 percent at 81.06 yen AUDJPY=R.

The Aussie managed to hold its ground against the greenback, staying above 70 U.S. cents AUD=D4 but still down 0.7 percent at $0.7037.