The yen hovered near a record high against a broadly weak dollar on Thursday, keeping alive the risk of official intervention to stem the Japanese currency's sharp rise.
The dollar slumped to 76.25 yen in early overnight trade as the nuclear crisis in Japan forced investors to cut back on carry trades and position for Japanese investors selling overseas assets to bring home funds.
Japan's current account surplus means at times of risk aversion, Japanese investors are unlikely to be willing to recycle yen into risky assets overseas.
Speculators forced the dollar below the previous record of 79.75, triggering a cascade of stop-losses related to exotic option structures and algorithmic selling of the dollar, sending the yen surging in illiquid trade between the U.S. closing hours and the Asian open.
It stood at 78.59 in volatile European morning trade, after buying by Japanese importers and some retail margin traders helped dollar/yen claw back briefly on to a 79 handle.
Group of Seven finance leaders and central bankers will discuss possible steps to calm markets roiled by Japan's crisis Thursday evening.
Traders said any co-ordinated intervention would be likely to involve the help of the European Central Bank and the U.S. Federal Reserve.
Japan's finance minister Yoshihiko Noda blamed speculation for the yen spike and said he was closely watching markets, a warning that the Bank of Japan may soon be given the signal to buy dollars.
Japan launched a record one-day, $26-billion U.S. bout of dollar-buying intervention in September when a stronger currency was undermining the Nikkei average and threatening to worsen deflation.
The cost of hedging against a further yen rise jumped, with implied volatility on one-month dollar/yen trading close to 20%, though still below levels seen at the peak of the 2008 global financial crisis of around 30%.
