The yen surged on Tuesday after Japan's prime minister said radiation levels near a quake-stricken nuclear plant had become high and the risk of further nuclear leakage was rising, prompting investors to dump risky assets. Trading was choppy, and the yen later trimmed some of its gains after a 100-pip spike in the dollar to above 82.00 yen spurred vague talk of yen-selling intervention by Japanese authorities.
But the dollar later sagged and traders said they were unsure if intervention occurred, adding that the Bank of Japan may instead have checked currency rates, a tactic sometimes used before actual intervention to scare traders against chasing the yen higher. The dollar last stood at 81.68 yen, little changed from late US trade on Monday.
The yen was broadly higher on the crosses, however. The Australian dollar fell 1.2 percent to 81.37 yen and the euro slipped 0.4 percent to 113.75 yen. "Dollar/yen was sold on the flurry of news related to the nuclear plant but seems to have found a floor for now," said an FX analyst at a Western investment bank.
Expectations that Japanese insurers and companies will repatriate funds to help pay claims and reconstruction costs in the wake of northeastern Japan's devastating earthquake had pushed the yen to a high of 80.60 yen per dollar on Monday, not far from the yen's record high of 79.75 to the dollar struck in 1995.
But market players are also wary about the potential for yen-selling intervention by Japanese authorities, given the sharp slide in Tokyo shares in the wake of Friday's devastating earthquake and Tsunami. Speculation is rising that Japan could intervene to stem the yen's gains as it could hurt the country's manufacturers, some of which are already smarting from damage from the natural disaster. One event that could lend some support to the dollar against the yen over the longer-term is a US Federal Reserve policy meeting coming up later on Tuesday.
The dollar rose broadly. The dollar index, which measures its value against a basket of currencies, climbed 0.5 percent to 76.697, pulling away from a four-month low of 76.124 hit last week. The dollar, which investors tend to flock to in times of financial market stress, also rose against the Australian dollar, which slid 1.2 percent to $0.9971. The euro fell 0.4 percent $1.3924. The euro had climbed to a four-month high around $1.4036 earlier this month, supported by market expectations for the European Central Bank to raise interest rates soon to keep inflation in check.