Yen rebounds as G7 reports fuel short covering

The yen rebounded against the dollar and other major currencies on Thursday after sources said the previous day that European officials want to complain over the Japanese currency's weakness at next month's Group of Seven meeting.
The reports prompted more market players to cover the big positions betting against the yen that had built up and pushed the Japanese currency to a record low against the euro and a four-year low against the dollar this week.
Next Monday, Euro zone finance ministers will draft a common position for the G7 gathering that will include a more forceful message that the yen is too weak, a source close to the preparations told Reuters on Wednesday.
Speculation has stirred before the meeting of G7 finance ministers in Germany on February 9-10 that the yen's sharp slide would provoke gripes from other countries.
"We think the G7 cannot take co-ordinated action to correct yen depreciation at the meeting," said Toru Umemoto, chief FX strategist at Barclays Capital in Tokyo.
"The current dollar/yen level is not an issue for US policymakers, and any voluntary unilateral action to correct yen depreciation by the Japanese authorities would not be domestically accepted," he said.
Umemoto also said the Japanese government and ruling party officials see yen depreciation as desirable to help the economy pull out of deflation. Japanese Finance Minister Koji Omi said he had not heard that the yen would be a topic of discussion at the G7 and repeated the ministry's usual refrain that currencies should reflect economic fundamentals.
At the last G7 meeting, Japan's finance minister and European officials seemed to make co-ordinated comments that the yen should reflect Japan's economic recovery, but the talk did little to stop its fall. The dollar fell more than one yen from the day's highs to as low as 120.19 yen, and stood at 120.40 yen as of 0529 GMT, down sharply from 121.20 yen in late New York trade.
The euro shed around 0.6 percent to 156.05 yen down sharply from an all-time high of 158.62 yen struck just a day earlier. The single European currency was little changed near $1.2962. The pound fell to $1.9665 retreating from a 14-year peak of $1.9917 hit this week.