Japan has intervened in currency markets for the first time since August to weaken the yen, after the currency’s latest post-war high against the US dollar underlined its threat to the nation's export-led economy.
Japan has faced domestic pressure to act on the yen due to worries over its impact on the nation's economic recovery.
But the move may raise questions from Japan's global trade partners ahead of this week's G20 meeting in France, with pressure on China to take a more hands-off approach to the yuan.
Finance Minister Jun Azumi told reporters that Japan's action was unilateral and did not comment on the size of the intervention.
The dollar surged by around 5% to as high as 79.53 after hitting a fresh post-war low of 75.32 yen in earlier trading this morning. The move also saw the euro rise sharply to 111.57 yen from 107.06 yen.
"Although I had repeatedly said we will take decisive measures against speculative moves in markets, those moves unfortunately continued so I ordered intervention," Azumi told reporters at a news conference.
Analysts said the latest move was unlikely to halt the yen’s rise, Japan's other recent forays into currency markets have had a limited long-lasting impact on rates.
The yen has renewed its post-war highs against the dollar and surged against the euro as investors seek refuge from volatile markets stirred by euro zone debt fears and concerns for the global economy.
Japanese officials have in recent weeks stepped up intervention rhetoric in an attempt to verbally weaken the currency, but it continued to strengthen regardless.
Officials had hoped last week's European agreement on measures to shore up the euro zone and help resolve the bloc's debt crisis would boost confidence and have an easing effect on fund flows into the Japanese unit.
The currency issue is expected to emerge at this week's meeting of leaders of the Group of 20 industrialised and emerging economies in Cannes, France.
Amid pressure on China from the US and other countries to allow greater flexibility in the value of the yuan, analysts say that such efforts could become complicated if Japan is seen to be softening its own currency.
But concerns are growing in Japan that the strong yen, which erodes the repatriated profits of exporters and makes their goods less competitive, could undermine a fragile recovery from the March 11 earthquake and tsunami.
Japan's manufacturers have staged a rebound since the disasters that left around 20,000 dead or missing and shattered crucial supply chains, heavily disrupting Japanese industry.
But fears have mounted that such efforts are being compromised by the strength of the Japanese currency, with every one yen rise wiping tens of billions of yen from the annual operating profit of giants such as Toyota.
With more companies considering shifting jobs and production overseas in an effort to make their goods more competitive, officials have warned of a "hollowing out" of Japanese industry.
