Japan has pumped more funds into its shaky financial system after shares fell and the yen surged to a record high. Japan blamed the yen's rise on currency speculators following a huge earthquake.
The Bank of Japan injected another six trillion yen ($76 billion), increasing to 34 trillion yen the total amount of funds added to money markets since Monday to soothe jitters after last week's devastating quake and tsunami.
The move came as Japanese shares resumed their falls this morning as the country's nuclear crisis deepened and the value of the yen swung on the currency markets.
Traders said foreign buyers, drawn to cheap shares, steadied the market after an early tumble.
Tokyo’s Nikkei index ended 1.4% lower at 8,963, recovering from an earlier low of 8,640. The yen dominated the session.
The Japanese currency slid after surging past a record peak against the dollar in volatile trading that could have been linked to a stock market slump after an earthquake and tsunami hit Japan on Friday, damaging a nuclear power plant in Fukushima, north of Tokyo.
Hammered by a Nikkei sell-off on Monday and Tuesday, foreign banks have scrambling to raise cash in yen to cover their buying of shares, traders said.
Japanese banks have been reluctant to lend after the earthquake, worried about rapid cash withdrawals.
That forced foreign institutions to use the forwards and swaps markets to procure cash, contributing to the spike in the yen.
The yen surged as far as 76.25 per dollar, raising the prospect of Japanese intervention to stall the rally. As the dollar recovered to around 79 yen, the Nkkei index also rebounded from a loss of more than 4%.
Tokyo Electric Power Co (9501.T), the operator of the stricken nuclear plant leaking radioactive material , plunged 62% from its last traded price on Friday. It was the most actively traded share on the Tokyo Stock Exchange's first section.
