The dollar rose against the yen today as its rebound from an eight-month low prompted investors to trim short positions and after Japan's finance minister said intervention was possible in extreme cases.
After backtracking yesterday from remarks suggesting he was comfortable with recent yen strength, Finance Minister Hirohisa Fujii spoke again, saying he would not rule out taking action if currency moves were irregular but that not promoting a weak currency was the correct policy.
The yen, already on the back foot early after automatic dollar buy orders were triggered around 89.80 yen per dollar, weakened past 90.00 yen but later edged off its lows and analysts said his comments did not mean Japan's forex policy had changed.
The yen had hit an eight-month high of 88.23 per dollar on trading platform EBS yesterday but retreated the same day as Mr Fujii toned down comments that recent dollar/yen moves were not "abnormal".
Japan has not intervened in the currency markets since 2004 and many market players doubt the new government, led by the Democratic Party which won elections last month, will depart from the old administration's stance.
Traders and analysts say the dollar would have to fall to January's 13-year low of 87.10 yen to make the market think seriously about the possibility of intervention but many say a drop through 85 yen would more likely be needed.
Traders said dollar/yen was also being whipped around by flows related to the fiscal half-year end in Japan, with dollar demand from Japanese companies prompting more short-covering by speculators but with Japanese exporters also selling dollars.
The greenback rose 0.4 per cent from late New York levels to 89.97 yen, after forging a high for the day at 90.23. However, it is down about 3 per cent this month.
The euro also gained on the yen, rising 0.5 per cent to 131.68 after dipping to a two-month low of 129.84 on EBS yesterday. Sterling, which hit a five-month trough of 139.70 yen the previous day, rose 0.8 percent to 143.52 yen.
Reuters