The yen pulled back from record highs against the dollar Thursday amid mounting expectations that the finance chiefs from the world's leading industrialized nations will consider intervening to stem the currency's surge.
The finance ministers of the Group of Seven industrialized countries are due to hold a conference call, likely later in the day _ which would be just before Tokyo's markets are due to open Friday _ according to the French goverment. They are expected to discuss ways to calm fidgety markets in the wake of last week's devastating earthquake and tsunami and the subsequent crisis at the Fukushima plant.
Though the swings in Japanese stocks have generated most of the headlines, the yen has also been oscillating wildly, particularly towards the end of the New York trading session Wednesday, when the currency rose to an all-time high against the dollar of 76.53 yen.
By late morning London time, the dollar was back up to 78.41 yen. Even that level is well below the previous all-time low of 79.75 yen recorded back in April 1995.
Analysts said the prospect of coordinated action by the G-7 was one reason the upward pressure on the currency has eased _ speculators now are more wary of buying the currency.
Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ, reckons that the case for international intervention is "very evident."
Though there has been no official coordinated intervention since 2000, when leading central banks propped up the fledgling euro, governments regularly state their desire to prevent volatile price movements in foreign exchange markets.
"Disorderly price action has certainly taken place and has been driven by short-term speculative flows," Halpenny said.
Counter-intuitively, the yen has been a huge beneficiary of the devastation wrought by the earthquake and tsunami as it gains from its widely perceived status as a safe haven in times of market turmoil and as the speculators bought it on expectations of further rises.
The yen has also been buoyed by evidence that Japanese investors are repatriating cash to pay for reconstruction _ in the case of insurance companies, to pay claims for the massive loss of property and life.
The last thing the Japanese economy needs is a strong yen, which hurts its exporters, potentially deepening the already severe hit to the world's No. 3 economy.
Even if the other leading central banks, such as the U.S. Federal Reserve and the European Central Bank, decide against measures to limit the yen's export-sapping rise, the Bank of Japan would not hesitate to go it alone, analysts said.
After all, as recently as last September it intervened in the currency markets for the first time since March 2004 _ and that was when the dollar had fallen below the 83 yen level.
The repercussions of the yen's volatility is being felt throughout currency markets, and the euro was trading 0.8 percent higher at $1.4030, helped by a successful Spanish bond auction. The British pound was 0.7 percent firmer at $1.6124.