The Group of Seven warns on yen surge, stirs intervention talk

G7 finance ministers and central bank governors said they were prepared to act, if necessary, but market reaction was muted, reflecting doubts over the will for co-ordinated action and whether Tokyo could succeed acting on its own.

"We are concerned about the recent excessive volatility in the exchange rate of the yen and its possible adverse implications for economic and financial stability," the brief statement said.

"We continue to monitor markets closely, and cooperate as appropriate," the group, comprising the United States, Japan, Germany, Britain, France, Italy and Canada, said.

Some analysts took the statement as a code for a possible currency intervention, especially after the Australian central bank stepped into the market for a second day to support its dollar near record lows against the yen.

"Given the panicky and irrational movements of the yen of late, the Japanese authorities may conduct intervention independently," said Kazuyuki Kato, foreign exchange trader at Mizuho Trust & Banking in Tokyo.

"Such action may be taken if the dollar falls below the 90 yen level. But given the fact that the dollar is rising against major currencies, except for the yen, Japan is not likely to be able to win support for coordinated action."

Japan has not intervened in currency markets since 2004.

NEAR HIGHS
On Monday, the yen traded near an all-time high against the Australian dollar and near a 13-year peak against the U.S. dollar, as a 6 percent slump in Tokyo shares spurred a renewed wave of selling of higher-yielding currencies. It traded at 93.23 to the.

Fears that the worst financial crisis in 80 years set off by a global credit crunch will drive the world economy into a deep and damaging recession, pummeled stock markets worldwide and wreaked havoc in currency markets.

The flight of shell-shocked investors from emerging markets and massive unwinding of investments in higher-yielding but riskier assets, has propelled the yen -- a funding currency of choice for such deals -- to multi-year highs.

The Australian dollar became one of the latest casualties of the unwinding of risky trades, slumping to an all-time low against the yen and triggering a rare intervention from the central bank.

The yen climbed nearly 19 percent so far this year against the U.S. currency, which itself has gained substantially against many emerging markets currencies and the euro, despite the grim outlook for the U.S. economy.

The yen's strength threatened to further undermine the Japanese economy, the world's second-biggest, with its crucial export sector already struggling in the face of sharp downturn in the United States and Europe.