Yen seesaws in London

The yen seesawed on Thursday as investors became jittery about large short positions amid speculation that Europe would take a tougher tone over the Japanese currency's weakness at the next Group of Seven meeting.
A source close to the preparation of next month's G7 finance ministers' talks said on Wednesday Europe would seek a more forceful message from the meeting on the yen's weakness, sparking a yen rally.
But Bernd Pfaffenbach, deputy German economy minister and the top German official responsible for preparing the G7 summit, said on Thursday Germany was currently not planning to put yen weakness on the meeting's agenda.
Hiroshi Watanabe, Japan's top financial diplomat, said he did not think the yen's weakness would be a major topic at the February 9-10 talks. Their comments led to a scaling back of the yen's earlier gains, but investors remained reluctant to take on new carry trades - borrowing the low yielding Japanese currency to benefit from higher interest rates elsewhere.
"There is going to be a lot of volatility ahead of the G7 meeting and people will be nervous so they will be reluctant to load up on short yen positions," said Adarsh Sinha, currency strategist at Barclays Capital. By 1243 GMT, the dollar was down 0.2 percent at 120.89 yen, having marked out a 1-yen trading range on the day.
The euro was steady at 156.93 yen, 1-1/2 yen below the previous day's record high. Implied volatility on one-month dollar/yen options hit a 7-week high of 7.7 percent, whilst euro/yen volatility hit a 6-month peak of 7.8 percent.
"First we had the comments on carry trades, then we had the comments from Watanabe ... We're going to get to the point where people stop listening," said a London based trader. Asian Development Bank President Haruhiko Kuroda said yen weakness from carry trades had gone too far and that he saw a risk they will unwind within two years. His comments gave further support to the yen.
The euro was up 0.15 percent on the day at $1.2979, reversing a brief fall sustained after a weaker than expected reading from the German Ifo business sentiment survey.
The Ifo's headline index slipped to 107.9 from December's 108.7, confounding forecasts for a rise to 109. But the euro's fall after the data was short-lived as it did little to change expectations for more rate hikes from the European Central Bank.