The yen pulled back from 15-year highs against the dollar and a nine-year peak versus the euro on Wednesday on speculation Japanese authorities may take action to stem the currency's rise. The euro erased gains made on strong German economic data as a widening in peripheral eurozone bond yield spreads highlighted concerns about weak countries in the bloc, following a downgrade of Ireland's credit rating the previous day.
Investors were cautious about extending the yen's gains after Japanese Finance Minister Yoshihiko Noda repeated he would respond to yen moves when necessary. His comments followed a Nikkei newspaper report that the finance ministry may consider unilateral yen-selling intervention.
At 1120 GMT, the dollar was up around 0.5 percent on the day to 84.55 yen, within reach of a 15-year low hit on Tuesday around 83.60. The all-time low for dollar/yen is around 79.75 yen, hit in April 1995. Traders said there was higher demand for short-term dollar/yen options with a 85.00 yen strike price as intervention jitters increased, adding this was supporting the US currency.
The euro traded 0.6 percent higher at 106.89 yen, recovering from a nine-year low of 105.44 hit on trading platform EBS on Tuesday. The single currency pulled back from the day's high of 107.64 yen. Standard & Poor's on Tuesday downgraded Ireland one notch to AA- with a negative outlook, fanning worries about eurozone sovereign debt and the banking system. The euro was flat on the day at $1.2626.
The widening spreads pushed the euro off the day's high around $1.2725 hit after the German Ifo survey came in above forecasts. Traders said Middle East and Swiss selling demand also capped the rally. Risk aversion supported the Swiss franc and drove the euro to a lifetime low of 1.2973 francs on EBS.
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